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The Chinese Macro Economy in 2008-an Update Speech by Ambassador Fu Ying At the CBBC/ISFL Annual Lunch
2008/04/22

Sir David Brewer,

Ladies and Gentlemen,

I am much honoured to speak to this prestigious annual luncheon. Occasions like this provide good opportunities for networking between Chinese and British businesses.

Our meeting this time is happening against not very promising stories on the international economy. Premier Wen Jiabao also admitted that 2008 could be a very difficult year for the Chinese economy.

In China, the biggest concern is the price rise. Before the opening of the NPC session last March, an online column entitled questions for the Premier was created.

In less than two weeks, it received forty million visitors and three million questions. Among them the rising cost of living was the number one concern.

The Premier responded in his report to the congress, and set curbing price increase as the number one policy objective this year.

The first quarter saw CPI index rise by 8%. It all started since the second half of 2007 when drastic rise in the price of food and primary commodities led to the risks of full-blown inflation.

Labor cost is also rising, as greater attention is given to laborers' right after the Labor Contract Law was enacted earlier this year.

On the international front, soaring prices of primary commodities and excessive liquidity are fueling the inflationary pressure and loose liquidity in China.

So far China is not hit by the sub prime mortgage crisis, yet it is hard to say how much we will be caught in the ripples.

One difficulty at the moment is that the macro economic policies of the US and China are driving in different directions.

The United States has lowered interest rate six times to stimulate the economy, whereas last year the interest rate in China went up six times to cool down inflation.

The value of the US dollar has fallen sharply. At the same time the appreciation of the RMB has accelerated to an unprecedented 4.3% in the first quarter of this year. All of us whose budget is in US dollars are hurting.

According to some estimates, with one percentage drop in consumer demand in the US, Chinese exports would be cut by 5 to 6%.

Already in the first quarter China's trade surplus fell by 4.9 billion US dollars. This may have a cooling effect on the economy. But growth and jobs would also suffer.

The opposing macro economic trends in the US have further constrained China's macro economic options.

In the face of such a complicated situation, the Chinese government has defined its macro economic priorities as one preventing economic overheating, two fending off entrenched inflation.

This includes two elements: a prudent fiscal policy that allows for short term stimulus for the production of food, and a tight monetary policy.

In the first quarter, the economy has maintained 10.6% growth, showing continued momentum of fast and steady growth.

Therefore, we still have reason to see positive prospect of China's economy for this year and onwards.

Chancellor Alistair Darling was in Beijing early this week to have the first high level economic and financial dialogue with vice Premier Wang Qishan. I hope they would chart the road map for the two sides to make the best out of this difficult time.

The domestic and global situation offers a good opportunity for Chinese companies to move overseas. I always argue that UK is a good place to start with.

At this moment, the Chinese business, though keen to go abroad, are nevertheless constrained by lack of knowledge, expertise and shortage of qualified professionals.

Every time I talk about investing in UK, I was bombarded by questions of how, when, where and what.

I do encourage the British business community to be proactive to promote the advantages of this country. I suggested many times to the British ministers to engage with Chinese media. The Chinese media believes that good news is news too.

Developing a sound political and economic relationship requires a strong foundation of public support.

For me, the recent media reporting and the public reaction about China is like a wake up call. I realize that there is a huge information gap about China in this country.

Maybe I was always among people who are familiar with China; I did not realize that the media and the general public to some extent stayed at least 20 years back in terms of their knowledge about China.

If we go back to March 14 and read through all the media reporting about Lhasa incident, how much of their stories are truthful?

Some newspapers even crafted photos or used the photos of Nepal and India to prove a crackdown in Lhasa.

The prejudice is not only hurting the feeling of the Chinese people, it has also totally discredited the western media.

Few Chinese do not know that Britain invaded Tibet twice at the end of 19th and early 20th century and created this Tibetan independence issue. There is all the more hope that modern British people should have better appreciation of the Tibetan issue.

For us, this is not about human rights, or religious freedom. It is a question of separation or unity.

China went through lots of difficult times. If it did not break apart in the past, there is no reason for China to break apart this time.

Just now in the conversations, the gap between how the world sees China and how the Chinese see themselves came up. It is true that the world sees China as a rising power. But many Chinese consider China as a developing country. Because, though its GDP in aggregates may be big, it becomes small in per capita terms.

The Chinese people see China as being in the process of reform, where lots of problems need to be addressed. Mr Deng Xiaoping said many years ago that China is both big and small, strong and weak. It is only that the outside world tends to see a big and strong China and people in China tend to see the small and weak part of our country.

The recent media mis-reporting has been very upsetting for the Chinese people. CNN and BBC have become dirty words among the young people. I hope the media will learn the lesson and make an effort to reestablish their credibility in China. For a country with 1.3 billion people, it is a worthwhile endeavor.

This is a difficult moment for me. On the one hand, there is strong anti-west feeling growing in China. On this side, there will be continuous issues by people who want to use the Olympics to bash China.

But I will not give up my effort to engage with the media and people.

In the Chinese language, the word crisis is composed of two words: danger and opportunity. The spotlight gives us the opportunity to get cross more information about China today.

I also hope the financial sector and business world in Britain will be my ally in my effort to bridge the two peoples.

Thank you.

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