The failing macro-economic control – the WTO column

(later also at Chinabiz)

I have not been an admirer of the China-coverage by the Economist over the past few years, but this week they did some nice work in debunking a story that belonged to a standard set of convictions of both Chinese and non-Chinese media. It is always nice to see an effort of changing the classical ways to frame China-stories.
The official story is that last year the financial authorities successfully used macro-economic controls to halt growth of an overheated economy. Those measures to cool down the economy caused a ‘soft landing’, at least that is what everybody kept on writing, also after last weeks GDP-figures that told us China had been growing in 2004 with 9.5 percent.
But according to those figures, apart from a minor slowdown in the third quarter of 2004, those controls did not have the effects that were attributed to them. Growth in the fourth quarter went up 13 percent. Growth might have been larger without those measures, but then we enter the area of religious believes rather than verifiable facts.
For the argument’ sake we of course assume that these figures are correct. What contributed to their trustworthiness, was the observation that they actually conflicted with the standing policy. In the past they bent like bamboo according to the political winds of the day.
Since the cooling down of the economy was met with mixed feelings, including a huge turmoil at the global markets, the reheating might also evoke mixed feelings. It does raise questions whether the macro-economic control measures really work. In the second half of the 1990s then-premier Zhu Rongji seemed rather successful in cooling down the economy, but then the macro-economic tools also got some help from the Asian financial crisis that cooled the economy so much, the GDP-figures had to be cooked to avoid a downright depression.

In this kind of situation the analysis by the mouthpiece of the party, the People’s Daily is interesting. “All is well,” is their evaluation of China’s economy in 2004. Macro-economic controls have worked, the paper says, noting that “excessive investment in some sectors on the one hand and encouraging grain production on the other hand. So it's by no means a simply tight policy, let alone all-round austerity.”
That is also a way of looking at it. The People’s Daily attributes the bumper harvest of 2004 fully to those macro-economic controls and might be a little bit too much.

This subject seems actually more interesting than the one on the agenda of the G7, yes again, the revaluation of the Renminbi. China’s flamboyant governor of the People’s Bank of China, Zhou Xiaochuan, has accepted to talk about the subject. That of course does not mean anything: he probably talks about the subject everyday anyway.
The firm economic growth has put China again as a player on the international scene and people like Zhou obvious seem to enjoy their new role. Chinese economists have actually started to warn the US again, adding to this country’s monetary worries. Fan Gang, director of the National Economic Research Institute at the China Reform Foundation, was after years of relative silence back on the stage at the World Economic Forum in Davos to tell the world China had lost its confidence in the dollar.
Now, that was about time, if it really happens. This shift is already a boring decade on the agenda.

Fons Tuinstra