Premier Wen Calls Bank Reform "A Last Ditch
Effort"
In a rare moment at the close of the National Peoples'
Congress meeting, Chinese premier Wen Jiabao admitted
that his current round of bank reforms were a last ditch
effort, and that social progress and stability depended
on their success. Wen has said that failure, in this instance,
is simply not an option, and that China's social stability
and economic development are at stake.
Wen discussed the injection
of US$45 billion into two state-owned banks, and added
that the challenge was just as great as that faced by
the government and people with the SARS epidemic last
year. The main challenges were over-investment and rising
prices, and a possible economic bubble forming in real
estate and manufacturing industries such as steel and
automobile manufacture.
Investment in real estate in 2003 totaled more than one
trillion yuan (US$120 billion) rising more than 29.7 percent
over 2002, making for the fastest rise since 1995, according
to the National Bureau of Statistics.
China's economic challenges are made more challenging
by the policies of US Fed chairman Alan Greenspan, who
has shifted from avoiding debt, to embracing debt to jump-start
the US economy. The fear of many leading economists
is that the US is now creating a worldwide property bubble
with its low dollar policy. In the US, the main fear is
that the US economy is not creating enough domestic jobs.
This issue has grabbed the attention of Americans because
2004 is an election year.
Since Chinese companies need to convert dollar earnings
into yuan, this has led to excess liquidity and inflation
in China. The Chinese government has issued bonds in a
sterlization effort, but a great deal of money has gone
into real estate, and into the hands of provincial officials,
who use it to invest in industries where there is high
demand. Once the money gets into the hands of provincial
government officials, there is little that the central
government and macro economic policy can do.
For Wen Jiabao, the greatest challenge is changing the
management of the Chinese companies, and he has voiced
his exasperation previously. The management of the
state-owned banks are generally unpopular and disliked
by the general Chinese population, where they are often
compared to leeches who steal and abuse public money.
Often, they are the subjects of criticism in China's domestic
media.
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