China’s Wen Promises Reform - China Weekly 08.23

CHINA WEEKLY

China’s Premier Wen Jiabao spoke over the weekend about the important of reforming China’s political system to allow the nation’s rapid economic growth to be maintained. The Xinhua new agency reported that Wen highlighted the issue of democratic rights, which he referred to as “legitimate rights and interests”. The comments were made on a visit to the south China city of Shenzhen, which has undergone a massive transformation since it was designed in 1980 as a special economic zone. Wen emphasized that part of the goal of modernization involved the political system otherwise the results obtained from economic advances may be lost. Turing back to Shenzhen the Premier said the sprawling metropolis now provides a road map to achieving national prosperity. However, there were also reports that suggested this speech, which touched briefly on resolving problems of a overly concentrated power structure, was meant to placate citizens in the region who have been angered by corruption and abuses of power by state officials. Many among the top leadership in China view corruption and such abuses as the major threat to the Communist Party’s grip on power. They fear a public backlash against local officials will take on a national persona and ultimately lead to the party’s demise.

Elsewhere, it was announced early last week that stagnant Japan was passed by the roaring locomotive that is China as the world’s second largest economy. However, we maintain that while this is an important milestone it is one for politicians to make a big deal about while economists realize that nothing really has changed. The rankings of GDP can be misleading too, since the United States has the world’s largest economy but its people are not the richest. In terms of what they can buy, Liechtenstein, Luxembourg or Qatar tops the list – depending on whose estimates you follow (IMF, CIA, World Bank). While China is growing fast it is desperately poor, and while Japanese growth is almost absent it remains relatively rich. The latest figures indicate that Japan’s 127 million people produce the same amount as China’s 1.34 billion, a herculean $1.3 trillion. Showing that it takes China approximately ten-times as many people to produce the same amount and as a result when measured by the nominal value of their currencies, the typical Japanese person is 10 times richer. However, there are those who say that these numbers are misleading since prices are higher in Japan. When measured by purchasing power instead of currency value the Japanese worker is only five times richer than the Chinese one. If we apply this medium to the entire economy then China passed Japan long ago in size, in 2009, for example, China’s economy was more than twice the size of Japan’s in term of what incomes could buy.

In other news, real estate developers found to be hoarding land will be barred from receiving bank loans, China’s top land regulator said last week. He added that sanctions were meant to prevent runaway housing prices by ensuring steady supplies. Liao Yonglin, a senior official at the Ministry of Land and Resources said “in order to control housing prices, we will release information on any real-esate develop who tries to hoard land in away to financial supervision and administration departments, making bank loans impossible for those developers”.

Written by Jonathan Granby, DailyFX Research Team

If you wish to contact the author with comments of questions email jgranby@fxcm.com