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Chinese Government Fights Recession


This is Morning Edition from NPR News. I'm Renee Montagne.



And I'm Ari Shapiro. Economic data out of China suggests that the world's fastest growing economy is slowing down. Inflation there fell to four percent last month, marking a 16-month low. This week the government responded with a nearly $600 billion spending plan. NPR's Anthony Kuhn joins us now from Beijing. Good morning, Anthony.

ANTHONY KUHN: Hey there, Ari.

SHAPIRO: How bad is the slowdown looking right now? What are the numbers telling us?

KUHN: Well, what the inflation picture shows is a very, very different situation from earlier this year when inflation was at it highest level in a decade, and food prices were soaring to around 20 percent, and there was a lot of worry in the government that ordinary Chinese were not going to be able to afford to eat meat. Now there have been other figures that came out today. For example, export figures show that exports grew by 30 percent last month. And China's monthly trade surplus with the U.S. rose by nearly 14 percent.

But we know that a lot of export companies near Hong Kong have been shutting down, and so most analysts think that there's a shoe waiting to drop here and that those export figures can't last. Actually, this week we're going to see the release of more important economic growth figures for October, and then we'll really know how bad the slowdown is.


SHAPIRO: Well, can a stimulus package like the one that the government passed turn around those kinds of trends?

KUHN: Well, in the short term, which is what is crucial, it's unlikely. And what most observers here are saying is that, above all, this stimulus package is a signal. First of all, it's a signal that the government's priorities have shifted from fighting inflation, which is what they were doing earlier this year, to maintaining economic growth. With this message it wants to restore investor confidence in the housing and stock markets. It wants to get China's banks lending and China's companies investing again, which was exactly the opposite of what they wanted them to do earlier this year.

SHAPIRO: Now China says the key to growth is consumer spending. Is this package going to boost consumer spending?

KUHN: It will certainly have some effect, but China wants to have a consumer economy, and they're still many years away from that. If you talk to Chinese people, the reason they're unwilling to spend is because they're worried about who's going to pay for their retirement and who's going to pay for their medical bills. And the government has been working on this for years, but it'll still take a long time before they're ready to open their purses. And we have to remember that China remains mostly rural and the rural population has an income that's about one-third of folks in the cities. So even if they wanted to spend the money, they don't really have it.

SHAPIRO: OK, so how much of this package is actual real spending, and how much of it is what we might call creative accounting?

KUHN: Yes, well, for sure there are going to be lots of new railroads and airports being built in China in the next couple of years, but the government has also made it clear that they are moving the numbers from one column to another. For example, work on rebuilding earthquake areas in Sichuan province. Money for that is being moved out of next year's budget and put in this year. There are going to be tax cuts for Chinese businesses. They are going to lower the value added tax. A lot of these details have yet to come out. It's not clear how much accounting the government has actually done.

SHAPIRO: Does this package seem to have had a positive impact on markets in the region?

KUHN: Markets did jump on the news of the stimulus package, including Japan and Australia and many other places. It was clearly a positive message. And people remember that in 1998, following the Asian financial crisis, China came out with a similar pump-priming package, and that did help the country to weather the economic crisis at that time. Whether it will have the same effect this time under different circumstances, with the decline in demand for Chinese exports, that remains to be seen.

SHAPIRO: Is part of this China's effort to show itself as a major global player in the economic scene?

KUHN: Well, what China wants to say in terms of its role as a global player on the economic stage will become, I think, very apparent this weekend when there is a G20 meeting. But - China is going to attend. And the message - it's already put out there. And that is that the best thing China can do to help the world economy is to keep its own economic growth at a good clip. Like the rest of its foreign policy, it does not want to take the lead. It does want to speak out on behalf of developing nations for a greater say, a greater share, in how the economic order is formed, but it's not going to try and take the lead here in this case, I think.

SHAPIRO: That's NPR's Anthony Kuhn speaking with us from Beijing. Thanks Anthony.

KUHN: Thanks, Ari. Transcript provided by NPR, Copyright NPR.