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Cablegate: Ndrc Chairman: Slowing Investment Growth, Fighting

VZCZCXYZ8359
OO RUEHWEB

DE RUEHBJ #0823/01 0660927
ZNR UUUUU ZZH
O 060927Z MAR 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5519
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/USDOC WASHDC
RUEHGV/USMISSION GENEVA 2117
RUEHFR/AMEMBASSY PARIS 4277
RUEHRC/USDA FAS WASHDC

UNCLAS BEIJING 000823

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV ETRD EINV CH
SUBJECT: NDRC CHAIRMAN: SLOWING INVESTMENT GROWTH, FIGHTING
INFLATION KEY CHALLENGES IN 2008

REF: (A) BEIJING 809

(B) 07 BEIJING 1528
(C) 06 BEIJING 4374
(D) BEIJING 583
(E) BEIJING 390

SUMMARY
-------

1. (SBU) Ma Kai, Chairman of the National Development and Reform
Commission (NDRC), stated on March 6 that China's macroeconomic
controls over the past five years have been effective and he is
satisfied with the rate at which investment growth is slowing. Ma
reiterated concerns expressed by Premier Wen Jiabao in the
Government Work Report (Ref A) that inflation may have a detrimental
effect on the economy, but he added that inflation primarily is due
to food price increases and the government will be able to control
prices through market mechanisms. External factors, including
higher resource prices and the sub-prime mortgage crisis in the
United States will affect China, he said. Ma defended the
government's response to the recent snowstorms and said the storms
would not have a long-term effect on the economy. It remains
unclear how the NDRC might be affected by the Central Government's
administrative reform plans. END SUMMARY.

2. (SBU) Unlike previous years (Refs B and C), Ma was not given the
opportunity to be the sole presenter at a National People's Congress
(NPC) press conference on macroeconomic controls. Instead, he was
joined by Minister of Finance (MOF) Xie Xuren and People's Bank of
China (PBOC) Governor Zhou Xiaochuan. Only four of fourteen
questions were directed to Ma with the other questions focused
primarily on China's fiscal and monetary policy (septel to follow).

NDRC'S SUCCESSES: AVOID FLUCTUATIONS, STABLE GROWTH
--------------------------------------------- -------

3. (SBU) Ma opened the press conference by responding to a reporter
about the effectiveness of China's macroeconomic controls, stating
that the NDRC's most important achievement over the past five years
has been promoting stable growth while avoiding economic
fluctuations. While there remain problems such as out-of-control
investment in some sectors and confiscations of arable land for
industrial use that have threatened grain production, Ma said he is
satisfied with the Central Government's progress towards slowing
investment growth. He stated that investment grew by only 24.8
percent in 2007 after several years of 30-40 percent growth. If not
for measures to rein in investment growth, Ma said, there would be
severe overheating.

4. (SBU) Ma added that excess money supply and overinvestment are
not necessarily the fault of poor macroeconomic controls. The
international environment, for example, also affects China, and
global markets have an impact on excess liquidity and inflationary
pressure in China. PBOC Governor Zhou stated that one source of
this impact is the current sub-prime mortgage crisis in the United
States. While the proportion of Chinese assets in sub-prime
investments is relatively small, Zhou said the impact of the crisis
on the U.S. economy will affect the global economy, including
China.

INFLATION: ATTRACTING GOVERNMENT'S ATTENTION
---------------------------------------------

5. (SBU) Ma acknowledged that China's Consumer Price Index (CPI)
growth, by 4.8 percent in 2007 and by 7.1 percent year-on-year in
January (Ref D), has attracted wide attention within the government
and from the public. Ma said the price hikes are primarily due to
rising food prices and are therefore structural in nature, so he
does not think China has entered an inflationary period. In fact,
he said, since grain and pork prices have been low for many years,
the price increases may be overdue. The Central Government cannot
afford to overlook inflation, however, and it will work to keep CPI
growth at 4.8 percent or lower in 2008.

6. (SBU) The NDRC Chairman said Premier Wen's nine measures to
control inflation that he announced in the work report basically
could be boiled down to three areas: (1) increasing the supply of
agricultural products, (2) offering subsidies to the low-income
population to offset price hikes, and (3) improving market
regulation and cracking down on price collusion. Wen said the NDRC
primarily would use economic means, rather than administrative
measures, to control prices. There currently are no plans to freeze
prices, he said.

7. (SBU) Comment: We are increasingly hearing views of analysts and
even government economists that China's inflation issues
specifically do not end with food supply shocks, that money supply
growth, which hit a 20-month high in January, may portend broader
inflation headaches down the road. At the same time, high growth in
productive capacity coupled with falling external demand could
actually prove to be a deflationary force. End Comment.

SNOW STORM IMPACT: ALMOST BACK UP AND RUNNING
--------------------------------------------- -

8. (SBU) Ma sought to reassure the public that the government's
response to the recent snow storms (Ref E) was appropriate, and he
said that relevant agencies have made progress in restoring the
country's transportation network and power grids. China's coal
inventory is back up to 2.7 million tons, he said. In addition to
Ma's answer to a journalist about the storms, the NPC also released
a report (in English and Chinese) at the press conference entitled
"An Introduction to the General Situation of Rush Emergency,
Disaster Relief and Post-Disaster Reconstruction Arrangements."

SUPER MINISTRIES: NDRC REORGANIZATION ON THE WAY?
--------------------------------------------- -----

9. (SBU) Comment: Interestingly, none of the journalists at the
press conference asked Ma about recent rumors that the NDRC would be
reorganized or that some of NDRC's responsibilities might be shifted
to other ministries under the Central Government's administrative
reform plans. We note, however, that this was the first year Ma
appeared at the macroeconomic policy press conference together with
the PBOC Governor and Minister of Finance, possibly indicating that
NDRC will be affected by forthcoming reforms. One journalist did
ask Minister Xie about MOF's ability to regulate insurance once it
"becomes a larger ministry," but Xie did not answer that part of the
question. It remains unclear how the NDRC might be affected by the
Central Government's administrative reform plans.

© Scoop Media

 
 
 
 
 
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