Economics: January 2008 Archives
US President Bush has delivered his swan song to Congress. And while the economy loomed large as the main focus, China's role in it has yet again been ignored. And if there is any consideration amongst the Chinese that this is a snub, I have one piece of advice: Get used to it!
George W. Bush has delivered his final State of the Union speech to lawmakers. And aside from one suggestion of creating a clean energy development plan for developing countries like India and China, Mr. Bush paid no attention to the middle kingdom. Instead, Mr. Bush's focus on trade was more directed toward South America, urging the Congress to approve trade agreements in that hemisphere instead.
So I'm going to be curious to see over the next day or so how the State of the Union address is going to be interpreted in the state-run media here in China. Undoubtedly there will be some attempt to link onto some aspect of the economic direction of the speech and tie China to it somehow. And if and when it happens, you can - at best - equate the impact of any said story to that of...say...a radio station in Lexington, Kentucky running a story about someone from that community who was in Brooklyn when the 9/11 attacks took place in Manhattan. While it may be a 'local' connection to a big story, in the grand scheme of things it means really nothing to anybody. I would argue that today's State of the Union should be a wakeup call for those in this country who have become convinced that China is one of the biggest and most important components when it comes to the politics surrounding the United States economy.
As a Canadian, I've become used to being overlooked by US Presidents and lawmakers when it comes to important policy speeches about economics. This, despite the fact that Canada is not only the United States' largest neighbor, but also shares with it the largest bilateral trade relationship in the world. Well over 500 billion dollars last year. Yet, we as Canadians get lip service, at best, in US politics. But you know what...it's been like that for us for years, and we've become accustomed to being ignored. Sure, we'd like to get a mention every once in a while during big speeches like the State of the Union address. But, you know what, in the grand scheme of things, we know we just don't score very large on the radar screen. And let's face it, sometimes as a Canadian it's nice to not be mentioned by a President with the popularity rating of Mr. Bush!
But for all the bluster and hype that you hear in the Chinese media about bilateral trade with the United States, the trade deficit and the valuation of the Renminbi, today's speech should be an indication that China isn't really carved too high on the political totem pole when it comes to US economics.
Sure, China's got a permanent seat on the UN Security Council. It's got nuclear weapons. It's got the Olympics in a few months. But in the grand scheme of things, when it comes to what's most important in US politics, which is almost always the economy, it's time to realize - if China hasn't already - that politically speaking, it still isn't making big waves.
The latest CPI (Consumer Price Index) figures released by the government today can only be creating more questions about the fate of China's Premier.
As Zhongnanhai recently reported to you, the word making the rounds is that China's Premier, Wen Jiabao, could well end up being the fall guy for China's rising inflation rate. And today, the National Bureau of Statistics released new figures which show that China's CPI for 2007 rose 4.8 percent. At the beginning of last year, the Central Government's mouthpiece, Xinhua, estimated the 2007 CPI target at 2.5 percent. So these latest stats indicate that the government blew that target by almost 100 percent, which, statistically-speaking, is pretty embarrassing. The reason, the NBS points out - and has continued to point out for the last few months - is that the CPI rise has been mainly fueled by rising pork prices. So what does this have to do with the fate of China's Premier? Let me explain:
First, we have to go back to 2006. The government now admits that in 2006 the price of pork was underestimated. As such, pork production in China - which accounts for 50 percent of the world's total - began to decline. This, on top of Blue Ear disease in pigs spreading from the south to the north of this country, added to a supply shortage, and started the then-unseen push forward in pork prices. From mid-2006 to mid-2007, retail pork prices here in China jumped 50 percent, while wholesale prices rose an astounding 95 percent. This prompted Premier Wen Jiabao in May of last year to call an emergency cabinet meeting and later go on the television and publicly announce a new plan to increase domestic pork production through incentive programs and subsidies to try to level out the prices. However, the plan offered very few specifics. And even though, at that time, pork prices on a global level did appear to be stabilizing, the price has since continued to increase. And because China accounts for 50 percent of the world's pork production, it has to be assumed that these measures the Cabinet talked about last May obviously haven't worked. So who's to blame?
Well, in the grand scheme of things, there are numerous factors involved in the rise of pork prices, including feed shortages due to a global increase in biofuel production and import issues because of live-animal transport restrictions. As such, in reality, it's not really Wen Jiabao's fault. That's the reality. But history has shown us that the CPC will often overlook reality to save face with the people (see: the Mao 70-30 calculation). So if the CPI index continues to rise (which it is likely to do, but not only due to pork prices, of course), this government may eventually be called on to provide an answer and a face to go with it. And unfortunately for Mr. Wen, it was his face that was plastered all over the tube last May.