Smaller defense spending foreshadows larger shift in China’s government priorities

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China shifts gears with smaller defense increase

BEIJING — China’s government proposed its smallest increase in defense spending in two decades Thursday — a symbolic down payment on efforts to lift public spending, boost consumers and even out a persisting rich-poor gap that’s stoking social tensions.

Premier Wen Jiabao will further flesh out the government’s shift in priorities in a speech Friday that is China’s equivalent of the State of the Union. Social programs are expected to benefit as the government moves to re-gear the economy toward domestic consumption and away from the binge on easy credit and state investment that warded off the global recession.

In a preview, a spokesman for the national legislature said Thursday that the Cabinet plans to raise spending on its increasingly formidable military 7.5 percent to $77.9 billion (532.1 billion yuan). Though experts say China’s true military budget is higher, the rate of increase is the lowest since the 1980s, and analysts said that was directly tied to the new fiscal priorities.

“China has not fully recovered from the sluggish foreign trade and employment, and to some extent the government has financial difficulties,” said Ni Lexiong of Shanghai University of Politics and Law. “The situation requires that the defense budget not have a big rise.”

Wen’s outline of government policies opens the annual session of the national legislature, the most public political event that the ruling Communist Party holds and that this year comes at a time of triumphalism and anxiety for the leadership and ordinary Chinese.

With China having escaped the worst of the global downturn by ordering a flood of $1.4 trillion in bank lending and government stimulus, Chinese leaders see their model of heavy state intervention as having outperformed the capitalist West. China is now the world’s largest auto market, its Internet users outnumber the U.S. population and its economy is on track to replace Japan as the globe’s No. 2. Many Chinese take pride in the country’s prosperity and global respect.

Yet Beijing is jutting elbows with the U.S. and Europe over climate change, Iran’s nuclear program and the Chinese currency, which critics say is set artificially low to give China an unfair trade advantage. At home, Chinese are worried about rising housing prices and tiring of widespread official corruption and government policies that are seen as benefiting the communist elite, the wealthy and the connected; protests have become common to draw attention to land seizures, unpaid wages and other acts of unfairness.

With all decisions made ahead of time by the leadership, the party-dominated congress — and a simultaneous meeting of a government advisory body — are more about networking than lawmaking, adding to public cynicism.

“It’s a political carnival. Officials from all sectors from across the country pour into Beijing, bringing their aides and entourage,” said Yang Fengchun, a professor of government at Peking University. “Negative public sentiment and social instability are increasing rapidly in China. These issues are not new ones. Only now they have become more severe and more evident, and they could carry social and political costs.”

To prevent things from going awry during the meetings, police have ringed Beijing to keep out potential troublemakers from the countryside and preventively warned, monitored and detained noted political critics in the capital. Three artists who staged a brief, daring protest last month near Tiananmen Square against attempts to evict them from a village slated for demolition for development were held for 36 hours and released late Thursday, their families said.

The threat that public unease poses to the party’s rule has been an undercurrent of Premier Wen and President Hu Jintao’s seven years in power. Their administration has made it a priority to raise lagging incomes in rural areas and repair a social safety net that provided little security for urban Chinese and none for those in the countryside.

“It is the government’s responsibility to make the cake of social wealth as big as possible and the government’s conscience to distribute the cake in a fair way,” Wen said in an online chat this past weekend.

Last year, the government boosted spending on pensions, welfare and other social insurance by nearly 18 percent. In recent days, officials have bolstered pledges to increase funds for education to 4 percent of the economy by 2012 and renewed commitment to a $124 billion revamping of health care, now in the second of a planned three years.

Beyond fairness, the leadership recognizes that higher social spending will help wean China’s economy off exports and heavy doses of state investment and become more driven by domestic demand. With worries that hefty bank lending is not sustainable and that crucial export markets like the U.S. and European Union are complaining about Chinese trade practices, Beijing wants to accelerate the shift.

“An overall judgment of the economic situation at home and abroad shows that efforts to transform the economic development mode cannot be delayed even for a moment,” President Hu told party leaders last month in a speech that was seen as a prelude to the congress. He used the word “accelerate” over two dozen times.