China vows to rebalance economy, nurse environment
(Updates with stock market record, edits)
By Jason Subler and Zhou Xin
BEIJING, Oct 15 (Reuters) - China will promote more consumer spending to trim its bulging trade surplus and redouble efforts to limit damage to the environment inflicted by breakneck growth, President Hu Jintao said on Monday.
In his keynote address to the ruling Communist Party's five-yearly Congress, Hu also reaffirmed China's commitment to let the yuan move more freely and gradually dismantle the country's capital controls.
Hu said climbing faster up the technology ladder and weaning the economy off exports and investment were key to rebalancing an economy that for the first time will contribute more to global growth this year than the United States.
"This is a pressing strategic task vital to the national economy as a whole," he said.
Hu reserved the most dramatic language of his 2-1/2-hour speech for the need to protect the environment and conserve resources, which he said was vital to "the survival and development of the Chinese nation".
"Our economic growth is realised at an excessively high cost of resources and the environment," he said.
The speech contained no new initiatives, but Hu mapped out the contours of policy for the next five years.
Only by transforming its economic model and nursing the environment would China quadruple per-capita growth in gross domestic product between 2000 and 2020, Hu said.
Previously, the party had set the goal of quadrupling overall national output, but not income-per-head of a still-expanding population, over the 20-year period.
China, which has grown by double digits for the past five years, is likely to come under fire for its dependence on exports when finance ministers from the Group of Seven rich industrial countries meet in Washington on Friday.
The G7 wants China to import more and help ease trade and financial imbalances in the global economy by letting the yuan's exchange rate rise faster.
The yuan <CNY=CFXS> has gained a further 7.8 percent against the dollar since it was revalued by 2.1 percent in July 2005 and cut free from a dollar peg to float within tightly managed bands.
But the United States says the yuan remains far too cheap, given China's record $1.434 trillion stash of foreign exchange reserves and a current account surplus that the World Bank expects to reach 12 percent of national income this year -- unprecedented for a major economy.
NOT SO QUICK
The European Union is also frustrated because the yuan has actually fallen in value against the euro in the past two years.
China, though conscious of international pressure, is wary of letting its currency rise too abruptly for fear of endangering export jobs and exposing millions of farmers to cheaper imports.
Hu's speech balanced these conflicting considerations: "We will adopt comprehensive measures to maintain a basic equilibrium in the balance of payments. We must guard against international economic risks."
Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong, said he expected China to permit further flexibility in the yuan and further freedom in capital flows.
"But the speed at which this takes place may surprise markets. It's going to be years not months," he said. "This is not a policy that's going to be introduced in a week's time."
In a wide-ranging speech, Hu promised to narrow China's yawning gap between rich and poor and to deepen capital market reforms, so companies need to rely less on banks to finance their growth.
Hu was silent on the strategy of China's new sovereign wealth fund, which will manage part of China's currency reserves, but he said Beijing would encourage the growth of Chinese multinational companies and Chinese brand names in the world market.
Shanghai's stock market liked what it heard. The main index .SSEC, which has risen 400 percent since the start of 2006, burst past the 6,000 mark for the first time.
"The speech sends the signal that the government will ensure sustainable economic prosperity, which is the cornerstone of the stock market's boom," said Liu Lifeng, a fund manager at BOC International Holdings in Shanghai. (Additional reporting by Eadie Chen, Simon Rabinovitch, Langi Chiang and Samuel Shen)
By Jason Subler and Zhou Xin
BEIJING, Oct 15 (Reuters) - China will promote more consumer spending to trim its bulging trade surplus and redouble efforts to limit damage to the environment inflicted by breakneck growth, President Hu Jintao said on Monday.
In his keynote address to the ruling Communist Party's five-yearly Congress, Hu also reaffirmed China's commitment to let the yuan move more freely and gradually dismantle the country's capital controls.
Hu said climbing faster up the technology ladder and weaning the economy off exports and investment were key to rebalancing an economy that for the first time will contribute more to global growth this year than the United States.
"This is a pressing strategic task vital to the national economy as a whole," he said.
Hu reserved the most dramatic language of his 2-1/2-hour speech for the need to protect the environment and conserve resources, which he said was vital to "the survival and development of the Chinese nation".
"Our economic growth is realised at an excessively high cost of resources and the environment," he said.
The speech contained no new initiatives, but Hu mapped out the contours of policy for the next five years.
Only by transforming its economic model and nursing the environment would China quadruple per-capita growth in gross domestic product between 2000 and 2020, Hu said.
Previously, the party had set the goal of quadrupling overall national output, but not income-per-head of a still-expanding population, over the 20-year period.
China, which has grown by double digits for the past five years, is likely to come under fire for its dependence on exports when finance ministers from the Group of Seven rich industrial countries meet in Washington on Friday.
The G7 wants China to import more and help ease trade and financial imbalances in the global economy by letting the yuan's exchange rate rise faster.
The yuan <CNY=CFXS> has gained a further 7.8 percent against the dollar since it was revalued by 2.1 percent in July 2005 and cut free from a dollar peg to float within tightly managed bands.
But the United States says the yuan remains far too cheap, given China's record $1.434 trillion stash of foreign exchange reserves and a current account surplus that the World Bank expects to reach 12 percent of national income this year -- unprecedented for a major economy.
NOT SO QUICK
The European Union is also frustrated because the yuan has actually fallen in value against the euro in the past two years.
China, though conscious of international pressure, is wary of letting its currency rise too abruptly for fear of endangering export jobs and exposing millions of farmers to cheaper imports.
Hu's speech balanced these conflicting considerations: "We will adopt comprehensive measures to maintain a basic equilibrium in the balance of payments. We must guard against international economic risks."
Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong, said he expected China to permit further flexibility in the yuan and further freedom in capital flows.
"But the speed at which this takes place may surprise markets. It's going to be years not months," he said. "This is not a policy that's going to be introduced in a week's time."
In a wide-ranging speech, Hu promised to narrow China's yawning gap between rich and poor and to deepen capital market reforms, so companies need to rely less on banks to finance their growth.
Hu was silent on the strategy of China's new sovereign wealth fund, which will manage part of China's currency reserves, but he said Beijing would encourage the growth of Chinese multinational companies and Chinese brand names in the world market.
Shanghai's stock market liked what it heard. The main index .SSEC, which has risen 400 percent since the start of 2006, burst past the 6,000 mark for the first time.
"The speech sends the signal that the government will ensure sustainable economic prosperity, which is the cornerstone of the stock market's boom," said Liu Lifeng, a fund manager at BOC International Holdings in Shanghai. (Additional reporting by Eadie Chen, Simon Rabinovitch, Langi Chiang and Samuel Shen)
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