313) China: National People's Congress - The Economist

China
Flowering friendliness?

China's prime minister, Wen Jiabao, offers some gestures of conciliation
The Economist, Mar 5th 2010

BEIJING
AT THE opening of the annual session of China’s parliament, the National People’s Congress (NPC), the prime minister, Wen Jiabao, could not resist a bit of boasting. China’s economy, he said, in a two-hour speech, had been the first in the world to make a turnaround. With an implied sneer at the West’s continuing malaise, he spoke of socialism’s “advantages”: quick decision-making, effective organisation and an ability to “concentrate resources to accomplish large undertakings”.

Yet despite China’s swagger at having achieved 8.7% GDP growth last year (under the “firm leadership” of the Communists, Mr Wen reminded the nearly 3,000 party-picked delegates in the Great Hall of the People), its government has used the launch of the ten-day NPC session to make an unusual gesture of conciliation. The budget submitted to the legislature calls for the lowest rate of growth in defence spending since 1988, a period in which almost every budget has called for double-digit increases. This year it proposes a mere 7.5%, quite a plunge from last year’s growth of 17.8%.

Mr Wen did not attempt to explain the change of gear, which was all the more unexpected given recent tensions between China and America over American arms sales to Taiwan, trade, Tibet and more. His speech did not even mention military spending and suggested no slowdown in China’s military modernisation. Mr Wen said that this year China would “strengthen all aspects of the army” to make it better able to win “informationised local wars” (a euphemism for a high-tech war with America in the Taiwan Strait) and to respond to “multiple security threats”.

The budget report was even less forthcoming. It said military spending would be 519 billion yuan this year ($76 billion). It added that “these funds will mainly be used to modernise the army”—an even more terse explanation than China’s normally opaque budgets are wont to give on military matters. The NPC’s spokesman, Li Zhaoxing, said that China had always paid attention to controlling its defence spending and keeping it in line with the pace of economic development. But this year’s projected growth would be only 1.2 percentage points higher than the budgeted increase in overall central government spending, a far narrower gap than in previous years.

In the absence of a far more detailed breakdown of China’s military budget, the Americans will not be very impressed. The Pentagon said last year that despite persistent efforts to persuade the Chinese to be more forthcoming, its understanding of how China’s military accounting works had “not improved measurably”. It estimated that China’s actual military spending in 2008 was between $105 and $150 billion, compared with an officially declared budget of $60 billion that year.

But China’s decision to announce a much lower rate of growth in 2010 may be intended to send a signal. For all China’s increased assertiveness internationally over the past year (including its obduracy at climate-change negotiations in Copenhagen last December and heavy sentencing of dissidents despite Western appeals for clemency), it does not want to be seen as a potential military threat. Mr Wen repeated China’s usual target of 8% GDP growth this year, but many analysts believe that China could again exceed this figure. Few would have blinked if he had announced an increase in military spending well into double digits. But it would have reinforced longstanding worries about China’s military development, not least among its neighbours.

China is certainly keen to send a positive signal to Taiwan, whose China-friendly president, Ma Ying-jeou, has lost popularity since his inauguration in 2008. Opposition politicians have highlighted China’s continuing build-up of missiles on the coast facing Taiwan as evidence that Mr Ma’s attempts to improve ties with the mainland have produced no reciprocal gestures in the security realm. Mr Wen, however, said a “positive trend towards peaceful development” had emerged and that China would promote a “win-win situation” by signing a trade agreement with the island.

Despite their obvious relief that China has fared relatively well during the recent economic storm, Chinese leaders still fret that bad times could follow. China’s economic planning agency, the National Development and Reform Commission, acknowledged in a report to the NPC that house prices were “overheating” in some cities, consumer spending was unlikely to grow significantly this year and the effect of stimulus measures “might wear off”. Yet the government says it wants to keep the budget deficit to 2.8% of GDP this year, about the same as last year. The world’s largest army could be a good place to look for savings.