Wednesday, February 28, 2007

Some comments to a reporter on the up-coming NPC. Also, what do I think of the sell-off? It won't last, and Shanghai A's rally confirms it.

1. The 5-year plan approved last year focused on narrowing the
rural-urban gap and developing the countryside. Do you expect Premier
Wen Jiabao to continue focusing on both areas or do you expect him to
pursue other goals this year? Which steps do you expect Wen to take to
pursue those goals?

He has made social justice a mark of his administration, and he will continue to do so. The MOF will dedicate an increasing share of the budget on both closing the rural urban gap and in addressing welfare issues in rural and urban areas.

2. Do you expect Wen to introduce new measures (for example, widening
the US dollar-Yuan trading band) to narrow the trade surplus - a goal
set during last year's economic work conference? Do you expect the NPC
to approve the establishment of a new agency to invest China's
foreign-exchange reserves, or an agency to manage the financial sector?

There will likely be the continuation of gradual appreciation, perhaps 50 or so basis points faster than last year. There is heavy speculation that the NPC will establish the new investment body, but there is around a 30% chance that bureaucratic squabbling will delay it.

3. In terms of economic policy, do you expect Wen to introduce more
measures to slow the economy or prevent a stock-market bubble? Would
fiscal policy be expansionary (or would government spending decrease?)

I think they have had enough on the slowing the stock market bubble part after Monday. However, monetary policies will continue to be vigilant. Fiscal spending will likely expand modestly this year to accomodate all the new social spending programs. However, that won't be a problem since revenue income grows substantially every year.

4. Overall - what are you looking out for during the NPC? What's the
question you'd like to see answered during the NPC?

Well, one is always observing how activist the NPC is relative to previous sessions. The trend seems to be increasing activism, and there is no reason to think this NPC will be different. I think the anti-monopoly law may move toward passage at this NPC, although you would have to check. Also, due to age reason, one can expect to see more new faces among the vice chairmans and the standing committee members of the NPC.

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