Wen Jiabao: does not see it as China’s role to save capitalism from itself. from Financial Times FT.com

Wen Jiabao: does not see it as China’s role to save capitalism from itself. from Financial Times FT.comBy Lionel Barber, Geoff Dyer, James Kynge and Lifen Zhang
Published: February 1 2009 22:00 Last updated: February 1 2009 22:00
Wen Jiaboa
Wen Jiabao: does not see it as China’s role to save capitalism from itself
Wen Jiabao is on the fifth leg of what he calls his “Journey of Confidence” in Europe and he has been up since before dawn jogging in London’s Hyde Park.But the 67-year-old Chinese premier looks sprightly and dapper as he raises his index finger, looks his interviewers in the eye and says: “I am ready tobe open and sincere.”
HisEuropean tripmight come as a welcome relief from political pressures at home. Mr Wen is under fire because of the slump in the Chinese economy – which, he acknowledges,slowed sharply in the period after the August Olympics in Beijing.
But in London he is the man of the moment. Tony Blair, former UK prime minister, and David Cameron, leader of the opposition Conservative party, are bothwaiting in the wings at the Mandarin Oriental hotel for an audience, while at Davos, Switzerland, last week the delegateshung on his every word.
In a rare interview, Mr Wen outlined in forceful terms Beijing’s approach to dealing with the global financial crisis – frenetic activity at home, cautiousengagement abroad. International expectations of China are intense – almost on the same scale as those facing US president Barack Obama. But Mr Wen doesnot see China’s role as saving capitalism from itself.
Hopes in London and elsewhere that China would hand over a large chunk of its near $2,000bn (€1,560bn, £1,380bn) foreign reserves to help recapitalise theInternational Monetary Fund are likely to be disappointed. Mr Wen also plays down the idea of signing up to a new environmental treaty at the talks inCopenhagen later this year that would place limits on the country’s carbon emissions.
Asked if China bore any responsibility for causing the financial crisis, as a number of economists believe, he stiffens and says in a low voice: “It isa ridiculous view.”
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For the fulltranscriptof this interview,click hereFine blocco con virgolette
But he makes it clear that Beijing will do whatever is needed to maintain growth at “about 8 per cent” this year. “Running our own affairs well is our biggestcontribution to mankind,” he says. If necessary, some of the country’s huge stash of foreign currency reserves could be put towards this endeavour – anew plan to enable the use of reserves for domestic purposes is under discussion, he says.
Even before the crisis, 2009 was going to be another big year for China. It is laden with important and potentially controversial anniversaries, from the60th anniversary of the foundation of the People’s Republic of China to the 20th anniversary of the Tiananmen Square protests. The economy is slowing sharply– the 6.8 per cent growth in the fourth quarter of last year represented the country’s poorest economic performance in a decade. Chinese exports have startedto shrink and tens of thousands of manufacturers have gone bankrupt, sending 12m redundant migrant factory workers tramping home to their villages. MrWen, who was the visible face of the government during the earthquake last year and has intimate knowledge of rural China, is facing his sternest testsince taking the helm as premier in 2003.
“We must take forceful steps. Under special circumstances, necessary and extraordinary measures are required,” he says. “We should not be restricted byconventions. Success or failure depends on the pace and intensity of those measures.”
Stimulating growth before the current slowdown deepens into a prolonged slump is the top priority. Referring to a raft of initiatives that the governmenthas already announced,including a Rmb4,000bn ($585bn, €460bn, £400bn) fiscal spending packageaimed mainly at infrastructure spending, Mr Wen says that further efforts may be required.
The government intends to fight on several fronts. Most important is the infrastructure spending and this, he says, is already well under way. But alsokey is a long list of measures aimed at providing the softer context to a comprehensive stimulus effort – including initiatives to boost consumer spendingand welfare.
The sales tax on vehicles with small engines has been halved. Meanwhile, 74m low-income people have received lump-sum spending subsidies. Former employeesof state-owned enterprises received pension supplements, there have been subsistence allowances for vulnerable groups, and Beijing has significantly increasedthe salaries of 12m primary and middle school teachers in the state system.
China's strengthening currency..
The trick in spurring consumer spending is not to engage in sloganising, Mr Wen says, but actually to put money into people’s pockets. “We do believe thatconsumer spending is vital in boosting economic development.”
Several commentators in the west have called upon China to overhaul its economic model by rebalancing away from its current heavy reliance on investment,savings and exports and embrace a more consumer-oriented system instead. Most observers agree that such a shift would require Beijing to relieve pressureon consumers by beefing up social welfare, healthcare and education provisions.
Mr Wen reiterates his pledge to put in place a “fairly comprehensive social safety net”. He adds that Beijing has already announced an Rmb850bn medicalcare spending plan and would spend Rmb600bn on unspecified technological upgrading.
The rural economy, which offers a livelihood to more than 700m Chinese, is also in for a boost, says Mr Wen, with the recapitalisation of the AgriculturalBank of China, the last of the big five state-owned banks to receive a large injection of state funds. The ABC is receiving an injection of $30bn, he says.
If Mr Wen expresses confidence in the government’s ability to weather the challenge to the domestic economy, he strikes a more defensive note about someof the international questions raised by the crisis.
Shortly before he left office, Hank Paulson, former US Treasury secretary,said in an interview with the Financial Timesthat the huge volume of savings in countries such as China had been one of the root causes of the crisis because it reduced risk premiums around the world.
Mr Wen ishaving none of it.“I think the main reason for this global financial crisis is the imbalances of some of the economies themselves. For a long time they have had double [fiscaland current account] deficits and kept up high consumption based on massive borrowing.” Banks used excessive leverage to reap huge profits. “And when sucha bubble bursts, the whole world has been exposed to a big disaster,” he says.Inizio blocco con virgolette
Path to power: a mandarin’s mandarin
When Wen Jiabao took over as Chinese premier in 2003, one of the few things that people outside of China knew about the former geologist was a famous photographtaken in Tiananmen Square at the height of the 1989 protests.
As a high-ranking official in the Communist party apparatus, Mr Wen worked closely with the reformist general-secretary Zhao Ziyang, and he was with MrZhao on the evening he went to the square for a tearful talk with some of the students.
When Mr Zhao and most of his reformist allies were purged, Mr Wen managed to keep his job. The skills that saved his career were a keen attention to detailand a reputation for unswerving loyalty to his superiors. He was the mandarin’s mandarin.
Since becoming premier, he has shown a different side that has won him considerable popular support. In a political system where the top leaders wear thesame suits and dye their hair the same colour, Mr Wen – the son of rural teachers – has demonstrated a populist touch. He spends Chinese New Year in poorrural areas and is often photographed visiting hospitals or schools.
Within hours of the May earthquake in Sichuan, Mr Wen was on an plane to the disaster zone to direct operations, with television cameras covering his everymove. “This is Grandpa Wen here,” he called down to one child trapped in the rubble. Authoritarianism for a new media age.Fine blocco con virgolette
“It is completely confusing right and wrong when some countries that have been overspending then blame those that lend them money for their spending,” heargues. Mr Wen points to a famous proverb in China about Zhu Ba Jie, a fictitious character in the 16th-century Chinese fable, Journey to the West , whoalways blames others who try to help him. “When I shared this view at Davos with the world business leaders, they all agreed with me on that,” he says.
He gives equally short shrift to the argumentput forward by Timothy Geithner,the new US Treasury Secretary, that China is “manipulating” its currency. “Completely unfounded,” he says: the renminbi had appreciated 21 per cent sinceChina adopted a managed float of its currency in 2005.
Mr Wen refuses to make an explicit commitment not to devalue the Chinese currency during the crisis – as the government did after the Asian financial crisisin 1997, a pledge that helped engineer the eventual recovery and won China a lot of prestige. But he does rule out any big shifts in the value of the Chinesecurrency.
“I want to make it very clear that maintaining the stability of the renminbi at a balanced and reasonable level is not only in the interests of China butalso the interests of the world,” he says. “Many people have not yet come to see this point that if we have drastic fluctuation in the exchange rate ofthe renminbi, it would be a big disaster.”
Mr Wen says that Hu Jintao, China’s president, and Mr Obama spoke late last week on the telephone, but would not confirm reports in the US that Mr Obamahad told his Chinese counterpart that the new administration would not take a confrontational approach over the currency issue. He expresses a hope for“increased co-operation” with the US, but says that there are a lot of different “voices” in the US debate.
Mr Wen says China, which is the largest foreign holder of US Treasury bonds, would continue to be an active participant in the market. “We believe thatit is important to stabilise the current Treasury bond market. To do so will be in the interest of shoring up market confidence, overcoming the globalfinancial crisis and facilitating the early recovery of international markets,” he says.
But he also issues a veiled warning that China might rethink its long-term investment strategy for its reserves once the immediate crisis is over, whensome economists believe the huge borrowing the US is undertaking could lead to a slump in the value of the dollar. “We will take into account China’s ownneeds to maintain the safety and good value of our foreign exchange reserves,” he says.
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China’s new prominence is coming with new responsibilities, yet Mr Wen is keen not to be pushed into too many expensive commitments. He plays down any ideathat China will use a large slice of its reserves to recapitalise international financial institutions, notably the IMF. Any process of reforming the IMFshould start not with capital injections but with reorganising its voting rights to give developing countries a bigger role. Mr Wen also stresses thatChina is still a relatively poor nation with huge development challenges ahead, which will limit its generosity.
He uses the same argument to push back against pressure to sign up for carbon emission cuts under the negotiations for the revised Kyoto treaty, which aredue to be completed at Copenhagen later this year. China will continue to set itself targets for improving its energy efficiency, he says. But it wouldbe difficult for a developing nation “to undertake quantified quotas to reduce our emissions”.
The Chinese government is equally nervous that the crisis will spur calls for swifter political reform and challenge its monopoly on power. That anxietyhas beenevident in the arrest and harassmentof some of the backers of Charter 08, a manifesto that calls for direct elections, the rule of law and an end to the one-party state.
Mr Wen is accustomed to fending off questions about the pace of political reform in China, with broad-brush statements about eventual liberalisation. “Manypeople in the west think that China is afraid of elections and democracy. Only if you have the trust of your people will they be willing to keep you inpower,” he says. But he provides little detail about any time­table for expanding direct elections beyond villages and the few townships where experimentshave been held.
An eclectic reader, Mr Wen says that when he travels he always carries a copy of The Theory of Moral Sentiments by Adam Smith, the Scottish economist, whichlays out the moral underpinnings for governing societies – and market economies.
“Adam Smith wrote that in a society if all the wealth is concentrated and owned by only a small number of people, it will not be stable,” he says. It isan observation that holds just as well for the crisis-ridden US as it does for China, with its skewed model of development and rising inequality.
CopyrightThe Financial Times Limited 2009