China’s economic recipe: Creating jobs at home rather than boosting market for imports

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China’s economic promises focus on creating jobs

BEIJING — Chinese Premier Wen Jiabao has pledged to extend job-creation programs and keep bank-credit flowing as Beijing tries to keep its factories humming and its workers employed at a time of growing trade tensions with the West.

Although the Chinese action is helping to keep the world’s economy afloat, the budget plan Wen outlined Friday showed that Beijing is sticking with a course that has driven exports and piled up huge foreign exchange reserves rather than buy up more products made outside China.

Wen made his announcement in the government’s annual report to China’s legislature, pledging that government spending will grow, albeit at half the rate of last year during the economic downturn, because the basis of the global recovery remains weak. He set a traditional 8 percent economic growth target for what he called a “crucial year” and warned of continuing economic turbulence from the global financial crisis.

“We still face a very complex situation,” Wen said in a nationally televised two-hour speech to nearly 3,000 deputies gathered in the Great Hall of the People for the opening of the National People’s Congress. “Many destabilizing factors and uncertainties remain in our external environment.”

Wen said China needed to cool inflation, cope with banking risks and boost consumer spending to ease the world’s third-largest economy’s reliance on exports and investment to drive growth.

Much of his address, however, dealt with problems stirring unease among China’s 1.3 billion people that could potentially threaten social stability — the communist leadership’s overwhelming concern. Wen pledged to narrow a yawning wealth gap, increase the stock of affordable housing, boost the moribund rural economy and fight rampant corruption.

“Everything we do, we do to ensure that the people live a happier life with more dignity and to make our society fairer and more harmonious,” Wen said.

Washington is worried about its trade deficit with China, which totaled $226.83 billion in 2009. That’s the largest U.S. imbalance with any nation but down 15.4 percent from the record of $268.04 billion set in 2008.

The deficit with China is expected to resume rising in 2010 as the U.S. economy recovers and triggers more orders for Chinese manufacturers of shoes, toys and other low-cost items in high demand by American consumers.

Derek Scissors, a specialist on Asian economies at The Heritage Foundation think tank, said there’s no reason for American manufacturers to think that more of their products will be getting into China because of Wen’s speech. He said China is still committed to investment in its own companies so that strong sales to foreign countries continue.

Wen’s focus on jobs, Scissors said, is “a sign that we’re going to get quick Chinese growth of the same kind that we’ve seen before, which doesn’t reduce the trade imbalance and doesn’t provide any spark to the American economy.”

Michael Green, former President George W. Bush’s top Asia adviser, said this will create disappointment and frustration among world leaders that China is not doing enough to encourage local demand for other countries’ products.

Few initiatives in Wen’s speech were new. The cautious government prefers incremental policymaking to bold shifts. Wen and President Hu Jintao began boosting social spending earlier this decade, recognizing the threat that unrest poses to Communist Party rule. Now in the last three years of an expected 10-year term, they have less incentive and political support to strike out in new directions.

The annual session — the most public event the authoritarian government holds — is shrouded in heavy security to prevent disruptions. More than two dozen people who hoped to petition officials for redress of grievances or who raised suspicion were bundled into a police bus and driven away.

Away from the meetings, police have warned and detained political activists, even forcing the cancellation of a seminar hosted by an AIDS awareness group.

The measures reflect leaders’ fears of rising dissent and independent voices that could challenge their grip on power.

Across China, protests — some violent — have grown common among farmers and workers angered by land seizures, unpaid wages and other acts of unfairness. In recent years, even members of the urban middle class have taken to the streets in opposition to some policies, while concern is rising over the future of millions of jobless college graduates.

The government has avoided more serious discontent by focusing on economic growth, and the country escaped the worst of the global downturn by way of a flood of $1.4 trillion in bank lending and government stimulus.

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 second largest. Many Chinese take pride in the country’s prosperity and global respect.

However, Wen said the increase in government spending would fall to 11.4 percent this year, half of what it was in 2009. A leaner budget has forced down the increase in defense spending to 7.5 percent, the lowest level in more than 20 years.

Wen promised hefty outlays for pensions, education, health care and subsidies for farmers to buy small cars and household appliances — all to spread prosperity more fairly.

He said the government would invest 43.3 billion yuan to stimulate employment, and extend for another year a program that exempts employers from making required social security contributions on behalf of their workers. He said the program aimed to create jobs for more than 9 million people entering the urban work force and keep unemployment below 4.6 percent. The official rate is currently 4.2 percent, although that only includes registered urban job losses and the actual figure is estimated at up to double that.

Associated Press writer Foster Klug contributed to this report from Washington.