VZCZCXYZ8359
OO RUEHWEB

DE RUEHBJ #0823/01 0660927
ZNR UUUUU ZZH
O 060927Z MAR 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5519
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/USDOC WASHDC
RUEHGV/USMISSION GENEVA 2117
RUEHFR/AMEMBASSY PARIS 4277
RUEHRC/USDA FAS WASHDC

UNCLAS BEIJING 000823 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN PGOV ETRD EINV CH
SUBJECT: NDRC CHAIRMAN: SLOWING INVESTMENT GROWTH, FIGHTING 
INFLATION KEY CHALLENGES IN 2008 
 
REF: (A) BEIJING 809 
 
(B) 07 BEIJING 1528 
(C) 06 BEIJING 4374 
(D) BEIJING 583 
(E) BEIJING 390 
 
SUMMARY 
------- 
 
¶1. (SBU) Ma Kai, Chairman of the National Development and Reform 
Commission (NDRC), stated on March 6 that China's macroeconomic 
controls over the past five years have been effective and he is 
satisfied with the rate at which investment growth is slowing.  Ma 
reiterated concerns expressed by Premier Wen Jiabao in the 
Government Work Report (Ref A) that inflation may have a detrimental 
effect on the economy, but he added that inflation primarily is due 
to food price increases and the government will be able to control 
prices through market mechanisms.  External factors, including 
higher resource prices and the sub-prime mortgage crisis in the 
United States will affect China, he said.  Ma defended the 
government's response to the recent snowstorms and said the storms 
would not have a long-term effect on the economy.  It remains 
unclear how the NDRC might be affected by the Central Government's 
administrative reform plans.  END SUMMARY. 
 
¶2. (SBU) Unlike previous years (Refs B and C), Ma was not given the 
opportunity to be the sole presenter at a National People's Congress 
(NPC) press conference on macroeconomic controls.  Instead, he was 
joined by Minister of Finance (MOF) Xie Xuren and People's Bank of 
China (PBOC) Governor Zhou Xiaochuan.  Only four of fourteen 
questions were directed to Ma with the other questions focused 
primarily on China's fiscal and monetary policy (septel to follow). 
 
NDRC'S SUCCESSES:  AVOID FLUCTUATIONS, STABLE GROWTH 
--------------------------------------------- ------- 
 
¶3. (SBU) Ma opened the press conference by responding to a reporter 
about the effectiveness of China's macroeconomic controls, stating 
that the NDRC's most important achievement over the past five years 
has been promoting stable growth while avoiding economic 
fluctuations.  While there remain problems such as out-of-control 
investment in some sectors and confiscations of arable land for 
industrial use that have threatened grain production, Ma said he is 
satisfied with the Central Government's progress towards slowing 
investment growth.  He stated that investment grew by only 24.8 
percent in 2007 after several years of 30-40 percent growth.  If not 
for measures to rein in investment growth, Ma said, there would be 
severe overheating. 
 
¶4. (SBU) Ma added that excess money supply and overinvestment are 
not necessarily the fault of poor macroeconomic controls.  The 
international environment, for example, also affects China, and 
global markets have an impact on excess liquidity and inflationary 
pressure in China.  PBOC Governor Zhou stated that one source of 
this impact is the current sub-prime mortgage crisis in the United 
States.  While the proportion of Chinese assets in sub-prime 
investments is relatively small, Zhou said the impact of the crisis 
on the U.S. economy will affect the global economy, including 
China. 
 
INFLATION:  ATTRACTING GOVERNMENT'S ATTENTION 
--------------------------------------------- 
 
¶5. (SBU) Ma acknowledged that China's Consumer Price Index (CPI) 
growth, by 4.8 percent in 2007 and by 7.1 percent year-on-year in 
January (Ref D), has attracted wide attention within the government 
and from the public.  Ma said the price hikes are primarily due to 
rising food prices and are therefore structural in nature, so he 
does not think China has entered an inflationary period.  In fact, 
he said, since grain and pork prices have been low for many years, 
the price increases may be overdue.  The Central Government cannot 
afford to overlook inflation, however, and it will work to keep CPI 
growth at 4.8 percent or lower in 2008. 
 
¶6. (SBU) The NDRC Chairman said Premier Wen's nine measures to 
control inflation that he announced in the work report basically 
could be boiled down to three areas:  (1) increasing the supply of 
agricultural products, (2) offering subsidies to the low-income 
population to offset price hikes, and (3) improving market 
regulation and cracking down on price collusion.  Wen said the NDRC 
primarily would use economic means, rather than administrative 
measures, to control prices.  There currently are no plans to freeze 
prices, he said. 
 
¶7. (SBU) Comment: We are increasingly hearing views of analysts and 
even government economists that China's inflation issues 
specifically do not end with food supply shocks, that money supply 
growth, which hit a 20-month high in January, may portend broader 
inflation headaches down the road.  At the same time, high growth in 
productive capacity coupled with falling external demand could 
actually prove to be a deflationary force.  End Comment. 
 
SNOW STORM IMPACT:  ALMOST BACK UP AND RUNNING 
--------------------------------------------- - 
 
¶8. (SBU) Ma sought to reassure the public that the government's 
response to the recent snow storms (Ref E) was appropriate, and he 
said that relevant agencies have made progress in restoring the 
country's transportation network and power grids.  China's coal 
inventory is back up to 2.7 million tons, he said.  In addition to 
Ma's answer to a journalist about the storms, the NPC also released 
a report (in English and Chinese) at the press conference entitled 
"An Introduction to the General Situation of Rush Emergency, 
Disaster Relief and Post-Disaster Reconstruction Arrangements." 
 
SUPER MINISTRIES:  NDRC REORGANIZATION ON THE WAY? 
--------------------------------------------- ----- 
 
¶9. (SBU) Comment:  Interestingly, none of the journalists at the 
press conference asked Ma about recent rumors that the NDRC would be 
reorganized or that some of NDRC's responsibilities might be shifted 
to other ministries under the Central Government's administrative 
reform plans.  We note, however, that this was the first year Ma 
appeared at the macroeconomic policy press conference together with 
the PBOC Governor and Minister of Finance, possibly indicating that 
NDRC will be affected by forthcoming reforms.  One journalist did 
ask Minister Xie about MOF's ability to regulate insurance once it 
"becomes a larger ministry," but Xie did not answer that part of the 
question.  It remains unclear how the NDRC might be affected by the 
Central Government's administrative reform plans.