Beijing Targets Slower Growth in '07, Boosts Education and Health Spending

China's Premier Wen Jiabao said in a speech at today's annual meeting of the National People's Congress in Beijing that economic growth in 2007 is forecast to be 8%. This is the same target set last year, but missed as the economy grew 10.7%, its fastest clip in 11 years. Beijing has been trying to slow growth and over-investment but has mostly failed so far. According to Bloomberg, Premier Wen said, 'The government will control excess liquidity and further boost domestic consumption.' Despite two rate hikes last year and raising reserve requirements at banks, the economy is still hot with foreign reserves having topped $1 trillion, its trade surplus at record levels and lending exceeding the People's Bank of China target by 27%. Premier Wen also spoke of the need to control housing prices, reduce the rich-poor gap and reduce pollution, among other things. Separately, 2007 budget plans were announced, with increases of 42% set for education, 87% for medical care, 15% for rural areas and 14% for social security, for a grand total increase of 14.4% to $335 billion.

Sources: Associated Press, Bloomberg
Commentary: China's Total Market Cap? Don't Ask! • Chinese Markets Take Biggest Drop in 10 Years • China's Trillion Dollar Question
Stocks/ETFs to watch: iShares Trust FTSE-Xinhua China 25 Index Fund (FXI), PowerShares Golden Dragon Halter USX China Portfolio (PGJ). Bonds: iShares Lehman Aggregate Bond (AGG), iShares Lehman 1-3 Year Treasury Bond (SHY), iShares Lehman 7-10 Year Treasury (IEF), iShares Lehman 20+ Year Treas Bond (TLT), iShares Lehman TIPS Bond (TIP). Currency: PowerShares DB G10 Currency Harvest Fund (DBV), Euro Currency Trust (FXE)

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

Comments

[Dan Harris]

Won't this increased government spending on social services itself serve to increase growth? Is this not a way to prime the pump?

2007 Mar 05 08:38 AM

[huangjin]

No, because they just take money from people and spend it another way. There are just changing how it is spent, not how much is spent.

There is no such thing as an economy growing too fast anyway, it's absurd. If it were a problem bosses would tell their workers, don't work so hard! Take more vacation! Otherwise we'll make too much money!

If the economy is "overheating" is because there is too much money sloshing around, and the solution is to curb liquidity and slow the growth of the money supply, which the PBOC is only starting to do. Any attempts to control prices, or use fiscal measures, will simply cause more distortions in the economy.

2007 Mar 05 03:41 PM