Monday, July 25, 2005
First, I say that Wen is "more leftist than either Zhu or Jiang." Well, I did say that, and I wish I could've thought of a better word than "leftist." Perhaps, more "socialist," "populist." Okay, that was just stupid on my part.
On the second item, where I say "If Zhu had been in charge (the revaluation) would have been earlier and bigger." I DID NOT mean to say that it is because of Wen's timidity that this is the case. I repeatedly told the reporter that I thought Wen's more gradual approach stems from his deeper concern of livelihood and welfare issues. Wen is by no means timid. In fact, a major reason why he got the top job was because he decided not to blow up a series of reserve dikes along the Yangtze River during a huge flood because he predicted that the water would recede. That was a tough call and took a lot of guts to make.
COMMENT & ANALYSIS
The drivers of the rate of change MEN IN THE NEWS WEN JIABAO and Zhou Xiaochuan: The renminbi revaluation has shown divergent approaches to modernising China, write Richard McGregor and Mure Dickie.
By MURE DICKIE and RICHARD MCGREGOR
23 July 2005
(c) 2005 The Financial Times Limited. All rights reserved
At his annual news conference in March, Wen Jiabao, China's usually dour premier, promised mischievously that any revaluation of his country's currency would come as a surprise to the markets.
Mr Wen's efforts were only partly successful, however. China's move to a more flexible exchange rate has been in the works for so long, and the revaluation itself was so small - just 2.1 per cent against the US dollar - that it caused little shock when it came on Thursday evening in Beijing.
Indeed, the announcement by the People's Bank of China, the central bank, made it clear that it would maintain tight control over the renminbi even after scrapping the dollar peg.
The nuanced nature of the move reflects Mr Wen's wider strategy, which generally involves lengthy and agonising study of an issue with, for the most part, a cautious decision at the end.
The premier's love of studious preparation is reflected even in his rare news conferences, with officials favouring journalists who agree to disclose their questions in advance - and Mr Wen responding with what sound suspiciously like memorised -recitations.
The approach means even dramatic moves are seldom much of a surprise.
"Following the usual pattern, Beijing has adopted a 'radical' policy, of breaking the US dollar peg, but implemented it in a very gradual way," says Andy Rothman, a China strategist at the CLSA brokerage in Shanghai.
However, Mr Wen, whose role as premier gives him responsibility for managing China's fast-growing but fractious economy, has a politician's instinct for dressing up even gradual decisions as decisive. As a result, China got the headlines it wanted, highlighting the break with the greenback alongside the long-awaited revaluation.
The announcement, Chinese analysts contend, is precisely what Washington has been demanding of China in order to puncture the swelling bilateral trade deficit.
"The revaluation reflects the positive stance China has taken towards the US, as the Bush administration and Congress have kept complaining about their surging trade deficit," says Song Guoqing, an economist at Peking University.
"If China's one step back leads to a similar concession from the US, then a balance will be struck. But confrontation will follow if the US makes further demands."
The timing of the announcement is important, as it comes just before Hu Jintao, China's president, travels to Washington in September, a trip that otherwise might have been engulfed by congressional criticism of China's exchange rate policy.
But some analysts say the caution shown by Mr Wen and China's ruling Politburo of top Communist party leaders has been at the expense of more dynamic and globally savvy policymakers, such as Zhou Xiaochuan, the chairman of the People's Bank.
While acknowledging China's opaque system makes analysing the inner workings of the leadership difficult, Nicholas Lardy, an expert on the Chinese economy at the Institute for International Economics in Washington, says Mr Wen has been a laggard on renminbi policy.
Reflecting a view shared by many China scholars, Mr Lardy believes Zhou Xiaochuan, the chairman of the central bank, has been advocating change since last year, but has been stymied by the Politburo.
"It has been clear for some time that the central bank and Zhou have favoured some adjustment, but they have had a very hard time selling it," says Mr Lardy. "I believe they have been held up by the inclination of the top leaders for a small move, like we saw on Thursday."
Mr Zhou has none of the institutional clout of Alan Greenspan and would make no pretence of enjoying the freedom to act independently of Politburo policy.
Within the constraints of the Chinese system, however, he has carved out a more central, activist role for the PBoC, and not just in monetary policy.
In the past 18 months, Mr Zhou and a number of key lieutenants have moved to take control of the big state banks from the Finance Ministry. In the last month, the bank has also all but taken over policy to rescue the beleaguered securities sector.
Although not considered to be a consummate politician, Mr Zhou does have deeper financial experience than anyone in the leadership. In between stints at the PBoC, he has headed the securities regulator, run one of the large state banks and also been in charge of the foreign exchange regime.
Mr Zhou's openness is underscored by his support for bringing into the bureaucracy "sea turtles" - foreign-educated Chinese who are so-called because in Chinese the phrase sounds like "returned from overseas", the name given to foreign-educated returnees, who often struggle to find a place in the hierarchical government system.
Some analysts caution against reading too much into Mr Zhou's activism on the currency, saying it reflects as much the responsibilities of the PBoC as it does his personal views.
"The PBoC has been stuck with dealing with the consequences of a failure to revalue, and from a strictly institutional perspective, that is a big hassle," says Victor Shih, of Northwestern University in Chicago.
Mr Wen's cautious approach, however - allowing a headline revaluation, while ensuring it remains small and tightly managed - does reflect his political priorities.
Mr Wen and Mr Hu have studiously set themselves apart from the leadership team that preceded them, headed by Jiang Zemin and Zhu Rongji, by retooling policies in favour of farmers and the working poor. They believed these two groups had been left behind by the high-speed economic growth in the 1990s, and had become a dangerously volatile and destabilising force as a result.
"Wen has always been more concerned about domestic livelihoods, or, if you like, more leftist than either Jiang or Zhu," says Mr Shih.
Mr Wen's skills at performing the high-wire balancing acts needed to survive in top-level Chinese politics are not in doubt.
He was famously present when Zhao Ziyang, then boss and Chinese president, tearfully visited protesting students in Tiananmen Square in 1989, just days before the troops arrived brutally to clear them out.
The late Zhao was purged, whereas Mr Wen survived, and prospered.
These skills have served him well in building the necessary consensus to revalue the currency, a policy change strongly opposed by many lobby groups, especially exporters.
"Wen has done well in co-ordinating interests among pressure groups who support or oppose revaluation," said Zuo Xiaolei, chief economist with Galaxy Securities, one of China's largest brokerages.
Still, in many ways Mr Wen is still stuck very much in the shadow of his more dynamic and charismatic predecessor as premier, Mr Zhu. "If Zhu had been in charge (the revaluation) would have been earlier and bigger," says Mr Shih.
The cautious approach of Mr Wen and Mr Hu is in even sharper contrast to that of past Communist leaders such as late party patriarch Deng Xiaoping, who was still the final voice of authority when China last made a big currency move - a renminbi devaluation of more than 30 per cent.
For many Chinese, political timidity is a minor sin compared with the confidence and decisiveness shown by Mao Zedong, a man capable of happily launching political and economic movements that would destroy millions of lives.
Mr Wen is much more in line with the new era of consensus-based leadership within the Communist party, where no leader now has the political capital to rule alone.
Indeed, caution has so far served Mr Wen very well. But with China's currency and economy still subject to formidable pressures despite Thursday's revaluation, there may come a time when more dramatic action is required. One day Mr Wen may really have to surprise.