Saturday, March 28, 2009

What Beijing’s growth plan means

By Russell Leigh Moses - Taipei Times - Wednesday, Mar 25, 2009

Hope and danger collided at the recently concluded National People’s Congress in Beijing. The two-week conclave meets annually and while it is unfair and inaccurate to characterize the Congress as a rubber-stamp exercise, delegates tend to jump on the bandwagon of policies constructed by the central government and the Communist Party.

The hope was that the Chinese leadership would finally do something — preferably something bold — to forestall further decline in the country’s major economic indicators. Growth has slowed, exports have plummeted, unemployment has jumped and the prevailing view has been that a “blame the US first” strategy makes the most sense. Analysts kept waiting for Chinese officials to salvage capitalism by spelling out a plan to save its economy first.

The danger is that this is exactly what they did.

China’s government is divided on a number of matters, but there is a strong, sharp-edged consensus that social stability is at risk unless a robust stimulus package emerges to stave off further job losses. (Never mind that Chinese history lacks evidence of a clear, causal connection between unemployment and national unrest.)

Chinese Premier Wen Jiabao (溫家寶) confirmed that a major effort was being made to extend and implement the previously announced 4 trillion yuan (US$585 billion) plan and that more funds were available if conditions worsened.

Data on the scope of the stimulus package — for example, investment per province or the number of new projects versus those that more cash would restart or reinvigorate (and these projects versus those that would be shut down) — are difficult to determine. The transparency and consistency of official figures lag well behind the authorities’ hyped promises about government reform, streamlining of bureaucracy and the retreat of the Party apparatus.

Still, it is not what we don’t know about the stimulus plan that is troublesome. China’s government, as prone to political maneuvering and policy gridlock as any, appears to agree that immediate economic growth is crucial and that an 8 percent annual rate is essential.

Many officials (and the analysts and advisers who support them) assume this magic number represents the minimum rate needed to provide jobs to workers and managers while absorbing the more than 6 million new graduates who spill out of Chinese campuses each year in search of employment. That 8 percent target will be met because in China directed objectives are always attained and often exceeded. Political careers depend on acceding to central government demands.

And yet, China’s reliance on economic policies that require the heavy hand of the state to achieve officially decreed targets has been fading. The government’s renewed focus on such a target is thus another indication that the global economic crisis has strengthened those Chinese officials and intellectuals who advocate a socialist system. After all, it is much more difficult to make an argument for market economies when they are under siege.

The real danger of the new stimulus package is not ideological but environmental. What the figure of 8 percent signals to provincial officials and industrial managers is that the emerging promise of green GDP — wherein a local government must show not only growth, but also clean and energy-efficient growth — has been abandoned. Few Party officials really want to be troubled by the complexities of such calculations anyway, but either abide by them or pay them lip service for the sake of maintaining patronage and seeking promotion.

Now, with the Party’s ability to manage the economy seemingly at stake, its stimulus package implies a green light to bypass environmental regulations if jobs or growth targets are in jeopardy.

A big loser here is energy efficiency. The proportion of new outlays devoted to energy conservation and reduction have been cut almost in half, just when reforms in the price structure of energy use were beginning to kick in. Some measures aimed at redistributing the energy load — such as solar and wind power — have been retained. But the funding for these efforts will rest largely on provincial officials, who will be reluctant to compel local cadres to disrupt production and lay off even more workers. Much of politics in China is local, but little of environmental protection is.

There is worse news elsewhere in the new plan. Nearly every industrial sector that, according to the stimulus package, deserves direct and immediate government support is energy-intensive and polluting (cement and steel, for example) or heavily managed by the state sector and therefore missing incentives to balance growth with environmental protection (as is the case with the oil industry). Political lobbies that oversee these sectors and overlap with certain factions in the Party are simply too powerful for nascent interests in society and the bureaucracy to parry.

The recent signal being sent from China’s leadership is that economic revival rests on decreased regard for the environment. This retreat also illustrates how little consensus there is among high-level government officials for making China green. The danger of the current crisis is not that China’s government is not doing something, but that what it is doing undermines recent hope that China can help save itself by saving the environment.