Wen Jiabao didn’t throw any curveballs in his last government report as Chinese premier. Instead, his opening speech for China’s annual national parliament meeting focused on economic continuity. That gives a clear sign that big reforms will have to wait for the next generation of leaders, who take over in early 2013. By then, the cost of the necessary changes may be higher.
Wen’s speech, which will help set the tone for the Five Year Plan that starts in 2012, delivered some big numbers. China’s GDP growth goal was lowered modestly to 7.5 percent from 8 percent, and its inflation target kept stable at 4 percent. The fiscal deficit was targeted at 1.5 percent of GDP, up slightly from 2011 to reflect more spending on housing and welfare. All worthy but unexciting revelations.
What was missing was news of the reforms China badly needs. Rising income gaps, food safety, and energy preservation are key issues, but were given little air time. Reform of the managed exchange rate was also lacking. In fact, the central bank guided the yuan sharply weaker as Wen started his speech.
That suggests that stability, not change, will be the theme of 2012. That is understandable. Far from wanting to stamp their mark on their final days, Wen and President Hu Jintao stand to gain more by allowing a smooth transition to their successors, whom they help to select themselves. That leaves the next generation room to put their own mark on the economy. Investors, too, should value stability.
But by postponing the much-needed structural reforms, Wen isn’t really doing the next generation a favour. Wen and Hu have overseen the fastest growth period in modern Chinese history during their decade of power. Their likely successors, Li Keqiang and Xi Jinping, inherit an economy under threat from weaker external demand, rising social discontent, and strong interest groups. The reforms that would help counteract those forces look likely to remain largely undone for another year.