Chapter 38 Wen Jiabao: An Expert Committed to Developing a Market Economy

However, whether it was in 2004 and 2005, or in the time since then, the Chinese economy has neither a hard landing nor a soft landing.The Chinese economy simply did not land. The outside world's expectations once again failed.Conventional models and assumptions seem to have portended a definite outcome, however, the reality is far from expectations.There are various reasons for the expected slowdown in China's economic growth.Some people believe that China's economic growth depends too much on foreign capital.Others believe that the Chinese government's exchange rate against the dollar undervalues ​​the yuan.Foreign cash flowed into China in exchange for Chinese goods, adding to China's foreign exchange reserves and contributing to dangerous inflation and excess money supply.Others believe China's reliance on bad bank loans and government spending for growth is unhealthy.As far as the consumption in developed coastal cities is concerned, compared with the expenditure of large-scale government projects, the consumption activities of consumers account for a very small proportion.Some have even raised questions about China's infrastructure and the country's ability to meet the needs of urbanization and industrialization. In the first half of 2004, China's GDP grew by nearly 10%, far exceeding the previous expectations of the Chinese government.Not only foreign economists, but also Chinese leaders have voiced concerns about an overheating economy.Chinese Premier Wen Jiabao said frankly to Chinese and foreign people that the government needs to control the overheated economy. If the excessive growth cannot be controlled by the government, the Chinese economy will face serious risks.Like his predecessor Zhu Rongji, Wen Jiabao is also an expert dedicated to developing a market economy in China.

In the late 1990s, China's banking system encountered a minor crisis, and Zhu Rongji dealt with that crisis forcefully.By 2003 and 2004, China's banking system was much larger and more complex than it had been 10 years earlier, and the concerns it raised were far greater.China has begun to play a major role in the global economy, which has drawn increasing attention to its possible economic difficulties, and its consequences have caused growing concern around the world.Although the United States is still the world's largest economy so far, and its contribution rate to global economic growth is more than 1/4, but this does not mean that the United States' economic system will not be questioned.Although the reported figures show that the US economy is running smoothly, people can still feel that the actual situation of the US economy is not as good as the numbers reflect.The U.S. trade deficit with China has widened, and manufacturing workers are losing their jobs every month.Even as medical costs skyrocket and corporate profits boom, the average worker's earnings remain stagnant.The growth of the Chinese economy will scare Americans, as will the slowdown of the Chinese economy, but the two fears are different.

China's banking system is unsound and, if not remedied, will limit the growth and ultimately stagnate the Chinese economy.Leaders Deng Xiaoping in the 1980s, Jiang Zemin and Zhu Rongji in the 1990s were well aware of the problems existing in China's state-owned banks. Since then, Hu Jintao and Wen Jiabao have faced the same challenges.The Bank of China, established during the Mao era, was little more than a state-affiliated institution that provided currency at the behest of central and local governments.They do not function as commercial enterprises, do not consider lending for profit, and do not price risk or charge for services.Over the years, China's national banking structure has changed.The People's Bank of China performs the functions of the central bank, and the four major commercial banks are theoretically oriented to four different fields: agriculture, construction, commerce and retail.Central banks are responsible for setting interest rates and issuing currency.The Big Four continue to perform their traditional functions and have little connection to banking in the Western sense.

Despite some structural changes, the core problems of China's banking system remain.If an official in a province wants to get money for a new factory or a bridge, he borrows from a bank.Of course, there is no problem with the bank financing the project, and it is impossible to demand a rush to get the money back or charge interest.If the country's "five-year plan" establishes the goal of building a certain number of bridges or power stations, then banks will not refuse to provide loans for these construction projects.If a state-owned company wants to seek construction funds for such a project, and it has explicit support from the local government, it can get a bank loan.

Some corruption exists not only in central and provincial banks, but also in local banks.Local bank officials are inextricably linked with the local business community, and corporate loan requests are rarely turned down. In the 1950s and 1960s, the planned economic system that China once practiced still has an influence on some people, who always see the construction of new facilities simply as an achievement.Although the central government has been trying to change local concepts and discourages this kind of behavior of building projects for the sake of building projects, some places still maintain the original practice.

The existence of the above situation has led to a common perception that corruption is relatively serious in China.To a certain extent, whether you can get a loan from a bank does not depend on the specific purpose of the loan, but on the relationship network of the lender.How much economic benefit the loan project can bring to the bank is not the first priority.Once the loans are issued, they may not be recovered, and the result is that the banking system will be overwhelmed with non-performing loans and unproductive use of capital, resulting in inefficiency. Corruption is a difficult problem to pin down.Every country will go through a stage in its own development process when the institutional rules are not clear or even have no rules at all. This was true in China in the 1990s, and it was true in the United States in the 19th century.At that time, speculative banks in the United States might open their doors one day and close their doors the next.Without clear legal and institutional constraints, people only rely on relationships and their own mouth.The reason why family businesses can thrive in such an environment is because family members usually don't cheat on each other.Their relationship may not be great, but that doesn't stop them from fulfilling their mutual contracts and commitments, because in the end it's both good for them.Friends and in-laws can often also become close business partners.However, over time, people do not believe that purely commercial interests can replace family ties as a bond of cooperation, and corruption has arisen.

It has become an unspoken rule to do business by relying on the network in China.As a result, foreigners began to pay attention to China's "guanxi", the network of interpersonal relationships that must be carefully cultivated in order to achieve a certain purpose.They have to throw away old rules and familiar ways of doing things, attend various formal meetings with little actual content, attend various banquets and receptions, and spend a lot of time building interpersonal relationships.