After a week of high-level warnings that the Chinese economy needs to be reined in, the nation's leaders still face the daunting task of getting local officials to listen.
Both Premier Wen Jiabao (
"We must take effective measures to solve these problems and prevent the economy from growing too fast and overheating," Wen said in widely publicized remarks during a meeting with with top leaders of the country's provinces, cities and regions.
PHOTO: AP
Earlier, Hu had flagged new policies to "restrain blind growth in high energy-consuming and polluting industries," according to the state-run Xinhua news agency.
There was a certain sense of deja vu, as little more than two years earlier Beijing had used almost identical language to grapple with nearly the same type of problems.
"The elevated tone of urgency and the harsh language against over-investment are very similar to those in spring 2004," Goldman Sachs said in a research note on Friday.
What is not the same as in 2004 are the stakes involved. China becomes more important for the global economy with every passing day, and decisions made in Beijing now have ramifications far beyond the country's borders.
"Its overheated sectors now have a much bigger weight in its own economy, as well as in the broader global economy," Morgan Stanley chief economist Stephen Roach said.
Observers said it was significant that Wen's recent remarks were addressed to local officials.
This underscores what is perhaps the most important fault line in Chinese economic policy-making, which is that between central and local government.
"The local governments are definitely a problem," said Zuo Xiaolei, a Beijing-based economist with Galaxy Securities.
"But in an economy the size of China's, if you don't have enthusiastic and active local governments, it would be hard to move the overall economy forward. Every coin has two sides," she said.
Too much lending and excessive investment, leading to overcapacity at the national level, is a typical central government concern.
Local officials, on the other hand, tend to care much more about the need to ensure stability.
Government statistics explain why. The number of "public order disturbances" -- protests, riots and the like -- rose by 6.6 percent to 87,000 throughout China last year.
The best way to make people happy and calm is to keep unemployment in check, and in order to create jobs, more growth is needed. Officials know that. Their jobs depend on it.
"Its all about incentives. Local government officials have incentives to have fast growth, and they are judged on that. It's their promotion process," said Stephen Green, a Shanghai-based economist with Standard Chartered.
"If the central government change their incentives, they will change their behavior," he said.
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