PM Wen addresses China's economy at Davos

DAVOS, Switzerland - China's Premier Wen Jiabao blamed the United States' debt-financed spending binge and blind pursuit of profit for the global financial crisis in a speech at the World Economic Forum on Wednesday.

"Inappropriate macroeconomic policies in some economies and their unsustainable model of development, characterised by prolonged low savings and high consumption," was first in a list of reasons Wen cited for the crisis.

This was a clear reference to the United States, which has a savings rate below zero and relies heavily upon Chinese buying of U.S. debt to finance its huge current account deficit of 4.8 percent of GDP and growing.
But Wen chose not to address directly a brewing row over the value of its currency -- an issue closely tied to U.S. debt issuance.

The new U.S. Treasury Secretary Timothy Geithner last week surprised China by branding it a currency manipulator for depressing the value of the yuan to support its exports. Geithner was joined by the International Monetary Fund, which said the Chinese yuan was under valued.

This disappointed Beijing since the previous administration avoided the term for years, aware of U.S. dependence on China to buy its debt, and instead pursued dialogue.

In his speech, Wen also listed excessive expansion of financial institutions in the "blind pursuit of profit," the failure of regulation, lack of discipline by ratings agencies, and the spread of derivatives for the financial turmoil that has sent major economies tumbling into recession.

To tackle the crisis, Wen threw his weight behind efforts in the Group of 20 major economies to reform the financial system by tightening regulation and oversight. In particular, Wen supported strengthening the supervision of major reserve countries, a role given to the IMF but never effectively utilised.

Wen travels to Berlin to meet with German Chancellor Angela Merkel on Thursday as part of an European tour to discuss cooperation in solving the financial crisis.

On the outlook for China, Wen struck a tone of measured optimism. He said there were early signs that the economy may have started to turn around in late November. He pointed to a marked increase in lending and activity at ports.

"To be honest, it will be a tall order to achieve a growth rate of 8 percent in 2009, but I still retain the conviction that we will achieve this," Wen told business and political leaders in his keynote speech at the four-day gathering.
China, the world's third-largest economy, has slowed much more abruptly than expected in the face of the financial crisis, as wilting U.S. and European demand have slammed the country's export sector.

Annual economic growth slowed to 6.8 percent in the fourth quarter of 2008, from 13 percent in all of 2007. The 9 percent pace for 2008 was the slowest in seven years; growth slowed despite five interest rate cuts in the second half of the year.

That has muted hopes that China could help pull the global economy out of the current slowdown.


1 comment:

Cioara Andrei said...

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