Last week, the Chinese National People’s Congress, a 3,000-member body that substitutes for a parliament, and which meets once a year, was provided an assessment of the state of the Chinese economy by Prime Minister Wen Jiabao. This is usually seen as a largely formal ratification of the government’s agenda and activities, but this year’s meeting has come amidst perhaps the greatest threat that the Chinese economy has faced since it ventured down the path of export-led growth with the “four modernisations” of 1978. Although the economy has evolved quite significantly in the three action-packed decades since then, with domestic consumption and investment spending accounting for a far larger proportion of GDP, the developments of the past few months have exposed the country’s heavy dependence even now on western markets. As these economies have slid into recession, Chinese producers have been badly impacted. The government itself estimates that about 20 million migrant workers have been rendered jobless as a result of this. But Chinese government statistics being what they are, private analysts suspect that the actual number is much higher. With only faint hope that its major export destinations will bounce back even by 2010, the next couple of years look very challenging for China, with doubts among forecasters as to whether the government-projected 8 per cent growth will be achieved. As Premier Wen’s “work report” to the Congress indicated, this was seen as a virtually mandatory level of performance to satisfy mass aspirations for employment opportunities and higher incomes. Of course, he expressed confidence that the benchmark could be achieved. The impact of the $585 billion package announced some weeks ago will be to take the country’s fiscal deficit to about 3 per cent of GDP, but the government obviously feels that this is a small price to pay to minimise the risk of growth slipping below the 8 per cent mark.
In the run-up to the Congress, there were expectations that Mr Wen would use the occasion to announce some further stimulus measures; instead, what he did was to make a realistic assessment of the problems facing the country, in the immediate future and in the longer term. The allocation of the fiscal package across sectors reflects the recognition that investments need to be made to build buffers against similar shocks in the future. Apart from the immediate impact that it will have on demand through increased spending on infrastructure, the package also provides significant resources to set up a comprehensive social security system (partially dismantled after the Mao years) and to promote technological development. Of course, these initiatives will not bear immediate fruit; but, as in the US and some other countries, the Chinese government too is attempting to address longer-term challenges through sharply-enhanced spending.
An important dimension to the premier’s report is the sense of accountability that it conveys. What under normal circumstances would be seen as a formality takes on a deeper significance in a time of economic turbulence. The government’s and, by extension, the Communist party’s legitimacy rests strongly on its ability to deliver strong and sustained economic growth. As the economy slows down and unemployment increases, the risks of unrest increase, particularly as so many workers with no access to any safety net return to their villages and exert pressure on the service-delivery systems there. Mitigating this is a priority for the government, and the Congress represents an opportunity to reach out to party cadres to provide the reassurance that things are under control. Twenty years after mass student protests at the Tiananmen Square were put down brutally, legitimacy is a big concern for the government, democracy or no democracy.
