China tries to reassure on economy
The increase in the defence budget is the smallest in six years and comes at a time the PLA is transitioning to a modern force
BEIJING: China’s leadership tried to quell anxiety about its slowing economy following financial turmoil and rising labour unrest as it cut its growth target yesterday and promised to open oil and telecoms industries to private competitors in sweeping industrial reforms.
Premier Li Keqiang announced a growth target of 6.5% to 7% in a report to the national legislature on Beijing’s plans for the year. That was down from last year’s “about seven percent’’ and reflects the ruling Communist Party’s marathon efforts to replace a worn-out model based on trade and investment with more self-sustaining growth driven by consumer spending.
Mr Li, the top economic official, warned China faces “more and tougher problems’’ including weak export demand. But he expressed confidence communist leaders can maintain stable growth.
“China has laid a solid material foundation and its economy is hugely resilient,’’ the premier said in an address to nearly 3,000 delegates to the National People’s Congress, a 12-day affair that kicked off yesterday. “As long as we work together as one to surmount all difficulties, we will definitely achieve the targets for economic and social development in 2016.’’
In a wide-ranging speech lasting nearly two hours, the premier said Beijing will “oppose separatist activities’’ in Taiwan, which China claims as part of its territory. He announced no new initiatives following the election of Taiwanese President Tsai Ying-wen, who takes office in May.
A separate budget report released yesterday confirmed military spending will rise 7.6%, which comes at a time of tension with China’s neighbours over disputed portions of the South China Sea. It was the “lowest defence budget increase in six years”, the official news agency Xinhua said.
The premier promised more measures to clean up China’s badly polluted air, water and soil and more spending on science and industrial research and development to create technology and better-paid jobs.
Chinese l eaders are struggling to reassure their public and global markets about their ability to steer the world’s second-largest economy following a plunge in stock prices and currency turmoil. Spreading protests by laid-off workers have fuelled questions about whether Beijing can manage its ambitious economic transition.
The latest growth target is the minimum Chinese leaders say is required to achieve the official goal of doubling incomes per person from 2010 levels by 2020. Economists warn anything higher could set back reforms by forcing Beijing to prop up growth with more wasteful investment.
Last year’s economic growth declined to a 25-year low of 6.9%. Private sector forecasts suggest even achieving Mr Li’s lower target will be a challenge. The International Monetary Fund expects this year’s growth to drift down to 6.3%.
Mr Li promised to open electric power, telecoms, transportation, oil, natural gas and municipal utilities to private competition, though he failed to say whether foreign companies might be allowed in.
“We must deepen reform across the board,’’ the premier said. He said the market “must play a decisive role’’.
Delegates to the ceremonial legislature, which routinely endorses ruling party plans in near-unanimous votes, praised the plans.
“If the six-point-five to seven percent growth should be solid and real, I think it’s very acceptable,’’ said Liu Gexin, a delegate from Sichuan province in the southwest.
Others were more breathlessly enthusiastic. “It’s an exhilarating report. It’s a mobilisation order,’’ said delegate Zhu Liangyu from Beijing. “I completely agree with it.’’
Mr Li promised to open service and manufacturing industries wider to foreign investors but gave no details. He promised regulations would be made “more fair, transparent and predictable’’ to attract investment.
Business groups have complained Chinese regulators are hampering access to promising sectors in violation of free-trading pledges.
Much of China’s slowdown has been self-imposed as regulators clamped down on a building boom and nurtured retailing, tourism and other service industries.
Widespread expectations, despite repeated official denials, that Beijing will weaken its yuan to boost exports that forecasters say shrank by as much as 20% in February has driven an outflow of capital that spiked to a record $135 billion in December.
Last week, Moody’s Investors Service cut its outlook on China’s government credit rating from stable to negative, citing rising debt, capital outflows and “uncertainty about the authorities’ capacity to implement reforms’’.
A Chinese deputy finance minister retorted that Moody’s was wrong and shortsighted in comments reported by Xinhua.
Communist leaders have tried to shift public attention away from the growth target. They say their priority is jobs and so long as the economy generates enough they will accept slower growth.
The government also highlighted big data, encryption technology and “core technologies” such as semiconductors as the key elements of its push to grow into a tech powerhouse.
Even as it highlighted the need to improve internet infrastructure to rural areas and unlock the digital economy’s potential, Chinese economic planners called for a more secure and better managed Web, with enhanced internet control systems, internet security laws and realname registration policies.
Chinese officials including internet czar Lu Wei have played down concerns over what critics have described as China’s expanding Web censorship, saying that it is the Chinese government’s sovereign prerogative and a necessary measure to maintain domestic order.
Retailing, e-commerce and other service industries are growing and absorbing some idled workers but others are struggling to find work. The government says the economy created 13 million new jobs last year but has not said how many were lost at the same time. The China Labour Bulletin, a research group in Hong Kong, reported 2,606 labour disputes last year, nearly twice as many as 2014’s 1,379.
The premier pledged to boost consumption in areas such as elder care and health services and to link traditional businesses to the internet.
China has the biggest population of internet users and investors are pouring billions of dollars into developing online and smartphone-based ventures for food delivery, movie ticketing, travel and other services.
China will boost defence spending by 7.8% in 2016, the smallest increase in six years, reflecting slowing growth in the world’s second-largest economy and a drawdown of 300,000 troops as Beijing seeks to build a more streamlined, modern military. The People’s Liberation Army, being trimmed to two million troops from 2.3 million, will still be the world’s largest standing military. A robust armed forces remains a major priority for China’s leaders, who have pushed an increasingly aggressive campaign to assert territorial claims in the South China Sea and East China Sea, raising tensions with its neighbours.
Spending at all levels of China’s government is being curbed because of a drop in the economic growth rate, which fell to a 25-year low of 6.9% in 2015 and is expected to decline further this year. For most years since 2000, China posted double-digit increases in military spending, and this will be only the third time in that period with a single-digit increase, including 2010’s increase of 7.5%.
The lower increase is a reflection of the “new normal” of more moderate economic growth that President Xi Jinping has been touting for the past two years, said Alexander Neill, a senior fellow for Asia-Pacific security for the International Institute for Strategic Studies based in Singapore.
Still, such spending is “nothing to be sniffed at” in comparison with much smaller defence budgets and anaemic growth in military spending in most developed countries, Mr Neill said. “It’s reflective of China’s determination to maintain a robust and modern fighting force,” he said.
In announcing the approximate rate of increase, Fu Ying, spokeswoman for China’s ceremonial legislature, the National People’s Congress, told reporters that China needs to consider its defence needs, economic development and the country’s fiscal position in drafting the defence budget.
With last year’s budget standing at $144 billion (5.09 trillion baht), an increase of 7 to 8% would take defence spending for this year to between $154 and $155 billion, still less than one-third of what the US is proposing to spend this year.
The defence budget increased 10.1% last year, despite falling growth, which raised concerns about whether such spending was sustainable.
China says its military is strictly for defensive purposes, but takes a broad view of what constitutes threats to its core interests, including protecting maritime territory that is in dispute with neighbouring countries.
Its programme of building islands on reefs and atolls in the South China Sea as part of its campaign to claim virtually the entire region has unnerved China’s neighbours. Meanwhile, China continues a lowlevel programme of confronting Japanese ships and aircraft near a set of contested East China Sea islands.
The modest size of the i ncrease appeared to surprise many observers who had been expecting another double-digit increase in line with the military’s higher profile.
“I expected growth would be between 12 and 15%,” said Ni Lexiong, a military expert at Shanghai’s University of Political Science and Law, adding that any figure below 10% would likely be “not enough” to meet the PLA’s modernisation goals.
Mr Ni said the lower figure was likely due to both China’s current economic realities and a desire to be seen as working for peace and stability in its immediate environment, despite ongoing feuds with its Southeast Asian neighbours, the US and Japan.
The smaller increase comes as China is shifting more resources away from its massive land army and toward the navy and air force, along with cyber warfare and the missile corps. Along with its structural changes, the PLA says pay raises are constantly needed to compete with the private sector to attract and retain educated personnel qualified to operate high-tech weaponry and computer systems.
China provides no breakdown of its defence budget and Pentagon and global arms bodies estimate actual military spending may be anywhere from 40 to 50% more because the official budget doesn’t include the costs of high-tech weapons imports, research and development, and other programmes.
“The official numbers on the Chinese defence budget are pure fiction. They are meant to give a false sense of certainty where there is none,” said Ian Easton, research fellow at The Project 2049 Institute, an Asian security think tank.
With inflation running at under 3% this year, the spending jump may actually be bigger in real terms than during the last decade, when budget increases rose as high as 17.7%, but inflation also topped 8% at times. The PLA’s traditional mandate had been to guard China’s borders and prepare for contingencies involving Taiwan, the self-governing island that Beijing has pledged to take control of, by force if necessary.
Newer missions, including UN peacekeeping operations, are now taking China’s military much further afield, possibly even overseas on anti-terrorism missions as mandated by a new law.
Meanwhile, China’s Asia-Pacific neighbours are responding with their own increased military spending.
Japan has already passed a record-high defence budget for 2016 of $41.4 billion, its second annual increase following 11 years of declines prior to hawkish Prime Minister Shinzo Abe’s rise to power in 2012. Planes and naval vessels to counter China’s growing capabilities top the Japanese military’s shopping list.
India is spending big. New Delhi has expressed concern not only about its disputed land border with China high in the Himalayas, but also about the Chinese navy’s growing presence in the Indian Ocean.
Vietnam, which almost alone among the South China Sea disputants has confronted China openly, has roughly tripled its defence spending since 2009, adding advanced new equipment such as Kilo-class submarines from Russia.
Fellow claimant the Philippines is also seeking to fortify its largely ineffectual maritime defences, allocating at least $531 million this year to acquire patrol ships, air force planes and equipment for maritime security, officials said.
At $598.5 billion last year, US defence spending far outstrips all other nations, although it comes against a background of anticipated flat or falling defence budgets in coming years.
The omnibus appropriations measure passed by Congress in December calls for $573 billion for defence operations in 2016 and another $163 billion for Veterans Affairs Department programmes.
Regarding the US, China should be in an excellent position to capitalise politically on its slower growth in defence spending, Mr Neill said, especially when the US raises its usual complaints about a lack of transparency in the Chinese system.
“China can come back and say, ‘we’ve significantly cut spending,’ ” he said. “It’s quite a shrewd move, really.”