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‘Debt-Fueled Bubble’
By Bloomberg News
China’s Wen Blocked by Politics From Fixing ‘Unstable’ Economy
(Bloomberg) -- Premier Wen Jiabao calls China’s economic growth path “unbalanced, uncoordinated, and unsustainable.”
This week’s annual parliament session may prove he is unable to change its course.
Wen, 67, will give what amounts to China’s State of the Union speech tomorrow to the National People’s Congress in Beijing. His audience will include people who, according to analysts, disagree with some possible measures to fix the imbalance: provincial and municipal officials and such company heads as Hangzhou Wahaha Group Co. Chairman Zong Qinghou.
Adding to the inertia is the fact that Wen, President Hu Jintao and other leaders are nearing the end of their tenures, said Jim McGregor, a senior counselor in Beijing at APCO Worldwide. APCO is a public-affairs group advising clients including China Cosco Holdings Co., Asia’s biggest shipping company.
“China’s in severe election mode,” McGregor said in a Bloomberg Television interview. “They have 2 1/2 years left in their term.” There is “a lot of jockeying for position.”
Wen says China’s growth model -- emphasizing investment, manufacturing and exports over consumption -- is creating economic distortions. He told an online audience on Feb. 27 that 2010 would be “the most complicated year for the country’s economy” as the government sought to control property prices and inflation stoked by $1.4 trillion in new lending last year.
‘Debt-Fueled Bubble’
Wen’s view is shared by Kenneth Rogoff, a professor at Harvard University in Cambridge, Massachusetts. Rogoff said on Feb. 23 that a collapse of China’s “debt-fueled bubble” could send growth to as low as 2 percent from last year’s 8.7 percent.
“Things need to change now,” said Wang Tao, a Beijing- based economist for UBS AG, in an interview. “Later the costs will become higher and higher.”
One remedy is an overhaul of the tax system, Wang and other economists say, to create a dependable stream of revenue for China’s local governments. A property tax and a sales tax could wean them from dependence on land sales and production taxes. Land sales helped fuel real-estate speculation and taxes on industrial production stoked overcapacity in steel and cement as local governments built factories regardless of whether they generated a profit.
Against It
Those measures aren’t on this year’s Congress agenda “because there are so many people against it,” Wang said.
While a property tax isn’t likely to be implemented this year, a timetable may be set, Hong Kong-based CLSA Asia-Pacific Markets said in a Feb. 22 research note.
Many government officials oppose the tax, fearing it will reduce the value of their own real-estate holdings, said Arthur Kroeber, managing director of Beijing-based Dragonomics, an economics-research firm whose clients include hedge funds and Fortune 500 companies.
“A property tax is not suitable,” said Zong, of Hangzhou- based Wahaha, in an interview. He is a delegate to the Congress. “There is no need for it. It will just make houses less affordable.”
Wen is likely instead to announce measures, some of them favored by Zong, to help ease income disparities. They may include increasing the minimum wage and spending more on housing for poor people, CLSA said. Such moves help promote consumption and ease economic distortion, but they are insufficient, Wang said.
By Bloomberg News
China’s Wen Blocked by Politics From Fixing ‘Unstable’ Economy
(Bloomberg) -- Premier Wen Jiabao calls China’s economic growth path “unbalanced, uncoordinated, and unsustainable.”
This week’s annual parliament session may prove he is unable to change its course.
Wen, 67, will give what amounts to China’s State of the Union speech tomorrow to the National People’s Congress in Beijing. His audience will include people who, according to analysts, disagree with some possible measures to fix the imbalance: provincial and municipal officials and such company heads as Hangzhou Wahaha Group Co. Chairman Zong Qinghou.
Adding to the inertia is the fact that Wen, President Hu Jintao and other leaders are nearing the end of their tenures, said Jim McGregor, a senior counselor in Beijing at APCO Worldwide. APCO is a public-affairs group advising clients including China Cosco Holdings Co., Asia’s biggest shipping company.
“China’s in severe election mode,” McGregor said in a Bloomberg Television interview. “They have 2 1/2 years left in their term.” There is “a lot of jockeying for position.”
Wen says China’s growth model -- emphasizing investment, manufacturing and exports over consumption -- is creating economic distortions. He told an online audience on Feb. 27 that 2010 would be “the most complicated year for the country’s economy” as the government sought to control property prices and inflation stoked by $1.4 trillion in new lending last year.
‘Debt-Fueled Bubble’
Wen’s view is shared by Kenneth Rogoff, a professor at Harvard University in Cambridge, Massachusetts. Rogoff said on Feb. 23 that a collapse of China’s “debt-fueled bubble” could send growth to as low as 2 percent from last year’s 8.7 percent.
“Things need to change now,” said Wang Tao, a Beijing- based economist for UBS AG, in an interview. “Later the costs will become higher and higher.”
One remedy is an overhaul of the tax system, Wang and other economists say, to create a dependable stream of revenue for China’s local governments. A property tax and a sales tax could wean them from dependence on land sales and production taxes. Land sales helped fuel real-estate speculation and taxes on industrial production stoked overcapacity in steel and cement as local governments built factories regardless of whether they generated a profit.
Against It
Those measures aren’t on this year’s Congress agenda “because there are so many people against it,” Wang said.
While a property tax isn’t likely to be implemented this year, a timetable may be set, Hong Kong-based CLSA Asia-Pacific Markets said in a Feb. 22 research note.
Many government officials oppose the tax, fearing it will reduce the value of their own real-estate holdings, said Arthur Kroeber, managing director of Beijing-based Dragonomics, an economics-research firm whose clients include hedge funds and Fortune 500 companies.
“A property tax is not suitable,” said Zong, of Hangzhou- based Wahaha, in an interview. He is a delegate to the Congress. “There is no need for it. It will just make houses less affordable.”
Wen is likely instead to announce measures, some of them favored by Zong, to help ease income disparities. They may include increasing the minimum wage and spending more on housing for poor people, CLSA said. Such moves help promote consumption and ease economic distortion, but they are insufficient, Wang said.
