China's stimulus plan lauded

http://www.thestar.com/World/Columnist/article/606027

OECD chief says Beijing could have 'very positive effect' on the world's economic recovery

Mar 21, 2009 04:30 AM
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Bill Schiller
ASIA BUREAU

BEIJING – Don't expect China to grasp "a sword and shield" and single-handedly smite the international recession, the head of the Organization for Economic Co-operation and Development says.

"Not even China can do that," OECD Secretary General Angel Gurria told a briefing here yesterday.

"But it can have a very, very positive effect" on the world economy, the Mexican economist added, hoping to nudge China along.

Yesterday, Gurria added his voice to a growing chorus of international experts trying to temper expectations about just how much China can help to pull the world out of recession.

He said the OECD expects China's economy to grow "between 6 and 7 per cent" this year – down from the 8 per cent the organization had predicted as recently as November.



Most economists say the country must grow by 8 per cent to avoid an eruption of social unrest over rapidly rising unemployment.

This month, Chinese Premier Wen Jiabao assured the country that if everyone pulled together, China could achieve that figure.

But just this week, the World Bank also cut China's growth forecast, saying the country's economy would grow by 6.5 per cent in 2009 – down from the 7.5 per cent it had predicted earlier.

A 6.5 per cent growth rate would mark a precipitous decline: the Chinese economy grew at a scorching 11.4 per cent in 2007.

Gurria said the OECD will release more precise figures for 2009 at the end of the month.

China's export-driven economy has been hit hard since the economic downturn took hold last September.

Thousands of factories have closed and more than 20 million Chinese migrant workers have been thrown out of work as Chinese exports continue to plunge.

Almost all of those migrant workers have returned to the countryside, where life can be far tougher than in China's urban areas.

"The current recession has put into harsh relief the low level of the social safety nets and the livelihood of migrant workers," Gurria warned.

He praised China for its $730 billion stimulus package but said Chinese policymakers should be poised to take further action to stimulate the economy if necessary.

In just weeks, the Chinese economy will see more than 6 million new graduates entering the labour market looking for work.

Just to absorb those numbers – "to break even," Gurria said – China must have a far higher "cruising speed" than other countries, meaning a higher rate of growth.

But China's challenges on the job front are by no means unique: the spectre of unemployment is rising everywhere, Gurria noted.

"Jobs is the name of the game now," he said.

"It was a financial crisis, that has become an economic crisis and (is) now a jobs crisis – and therefore a human crisis."

But despite its challenges, China still has a role to play, he said.

The world economy's traditional "locomotives" were all "in the repair shop," Gurria observed.

"So we need more locomotives – and we need the aggregate demand of China and countries like India."

But at the same time, everyone needs to be realistic, he suggested.

"Even the positive growth of India and China isn't going to be able to offset the negative growth" of the developed world, he said.

"I don't think we're suggesting that China should save the world," he noted, "just that if China does very well – it will help the world."

The OECD's 30-member countries – of which Canada is one – will experience "very negative" growth this year, Gurria said.

But he wouldn't be drawn on specifics ahead of the G20 meeting in London in April.