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Wen Jiabao Reaffirms Macroeconomic Control Policy In a State Council Meeting

Two hotly debated opinions in a State Council meeting.

The State Council held its executive meeting, originally scheduled for July 5, on July 12, to discuss and review the economic development and achievements of macroeconomic control efforts, and to plan the government’s economic tasks for the second half of this year. Due to conflicting opinions on certain issues, the meeting lasted one day longer than the arranged one and a half days. The standing committee members of the Political Bureau, including Zeng Qinghong, Wu Guanzeng and Luo Gan, were in attendance on the last day of the meeting. All the ministers of related ministries attended the meeting, hoping to reach agreements, balance different opinions and shelve discrepancies.

Conflicts between the “pragmatic group” and the “expeditious group”

Ever since the 1990s, there have been internal arguments and differing opinions, both within the Political Bureau and the State Council, on the direction of economic development and the implementation of macro-control measures. Consequently, the so-called “legal scientific group” and “political indicator’s group” gradually evolved. The communities of political and economic analysts refer to them as “the pragmatic group” and “the expeditious group,” the former being led by Wen Jiabao and Wu Yi, with the latter being led by Huang Ju and Zeng Peiyan.

Wen Jiabao firmly maintains that macroeconomic control measures are necessary

Using a series of statistical illustrations, Wen Jiabao firmly concluded during the State Council meeting that macro-control is desperately needed, in spite of its late adoption. Macroeconomic control has seen its initial positive effect, but it is still not fully implemented. It faces some obstacles from the individual wills of senior officials in the Communist Party and government, mainly related to egoism and regionalism. If we do not directly face and overcome these hindrances, the overheated and uncontrolled economy will resurface. During establishment and development of the economy, those obstacles that defy scientific and pragmatic principles would cause serious damage and consequences, said Wen.

Three fatal problems

According to a report released in mid-June by a research department within the State Council, there are three critical problems in the national economy: the over-investment in fixed assets, the overly-rapid growth of production, and the nearly uncontrolled increase of money supply and growth of bank loans. Since 1999, the economic policy has been overemphasizing the index of the Gross National Product (GNP) and its growth rate, so that the national economy has developed abnormally, and is now on the brink of being off track. These three problems have disturbed and hindered the national economy’s development toward a steady, rapid, healthy and effective path. The direct, indirect and cumulative losses have reached 800 billion to 1.2 trillion yuan, which is equal to 6-9% of GNP, the report states.
The regional economy remains overheated nationwide

According to a survey report of the State Council, since the fourth quarter of 2002, the economic development in 28 provinces, autonomous regions, and municipalities have overheated. By the end of June 2004, 21 of them remained overheated because their fixed assets investment is still growing too fast. Compared to the same period in 2003. investment in the fixed assets was 82% higher in Jianshu Province, 77% higher in Shandong, 75% higher in Shanghai, 72% higher in Guangdong, 70% higher in Hunan, 70% higher in Liaoning, 60% higher in Henan, and 65% higher in Zhejiang.

At present, the shortage of electricity supply has reached 27%. The railway freight is running at 44% over its capability. 22% of the oil supply relies on imports, and increases 12-15% per year. There is a shortage of 20 categories of raw materials, which must be imported.

Wen Jiabao raising prominent problems to be solved

Wen Jiabao stated at the executive meeting of the State Council that the cabinet should not, at any circumstance, attribute the problems to the previous administration. The current cabinet should take the responsibility to deal with and resolve the conflicts and problems in a scientific, truthful, and pragmatic manner.

While summarizing for the work of economic development in the first half of the year, Wen Jiabao raised the following issues:

1. Many leaders in some areas or government agencies are out of mind. They use every excuse to make the economic development as rapid, diverse, and as large-scale as possible.

2. The scale of investment in fixed assets is excessively large. Structure of the investments overlaps.

3. The tension between supply and demand for coal, electricity, oil and transportation is difficult to resolve in a short-term, or even a longer period of time.

4. Overall economic achievements are weak. The expansion of internal needs is relatively narrow.

5. Unemployment rate is so high that it seriously affects and jeopardizes social stability.

6. The “three farming-related problems” are still very pronounced, although some progress has been made. Policy implementation remains poor.

The conflicts on the macro-control/overheated economy issue

The conflicts on the issue of macroeconomic control/ overheated economy within the State Council and local governments are as follows:

1. Was it necessary and effective to take macroeconomic control measures during the previous stage?

2. Whether the policy of macro-control and the soft landing of the economy should be continued?

3. Whether the growth rate of national economic development should be controlled below 9% or go above 10%?

4. Shall the economic and financial independence of local governments be regulated or deregulated?

5. How will the central government deal with conflicts and contradiction on policies and measures, between the central government and local governments?

Source: August, 2004 issue of Qianshao Magazine