WEN JIABAO: AN INTERVIEW WITH FAREED ZAKARIA

I have summed up my political ideals in the following four sentences: To let everyone lead a happy life with dignity. To let everyone feel safe and secure. To let the society be one with equity and justice. And to let everyone have confidence in the future. In spite of the various discussions and views in the society, and in spite of some resistance, I will act in accordance with these ideals unswervingly, and advance within the realm of my capabilities political restructuring. I will like to tell you the following two sentences to reinforce my view on this point. I will not fall in spite of the strong wind and harsh rain, and I will not yield until the last day of my life. 

Wen Jiabao is an engineer and geologist, the Premier of China, and someone who loves to quote poetry to illustrate his points.  He is an orderly thinker and the leading theorist behind China's evolving economic policy.  In the CNN interview with Fareed Zakaria, below, we can see something of his personality and his approach to running the country.  We can also see his grasp of economic and political theory: notice how he quotes from both of Adam Smith's economic texts: the familiar The  Wealth of Nations, and the other, less familiar The Theory of Moral Sentiments, on ethics.  He is the only prominent national leader--or, indeed, economist--that I am aware of who takes the moral dimension into account.

FAREED ZAKARIA: In all our news, one rarely gets the chance to hear from one of the people running this remarkable country, one that has grown now at over 9 percent a year for 30 years. Well, now you will.
We have for you a very rare event, an interview with Wen Jiabao, premier of China.

Let me tell you a little about this extraordinarily powerful, yet little known man. He was born in a suburb of Tianjin, the northeastern city in China, now connected by the world's fastest train to Beijing, a 75-mile trip takes half an hour.


He's an engineer by training as are almost all of the people running China and he has an advanced degree in geology, which is how he began his career in ministries related to geology, mining and minerals. He served in high positions under a succession of secretaries- general of the Communist Party.

Wen is famous for having gone to Tiananmen Square to try to talk to the students in 1989. It was a controversial move. His boss lost his job, but he kept his.

Wen Jiabao then went on to become the protege of Zhu Ronghi, the premier and economic czar of the China in the roaring 90s. Wen Jiabao then succeeded Zhu in that role.

Wen Jiabao is generally regarded as a technocrat, extremely hard-working and meticulous.

But in China he is known as ‘Grandpa Wen’ ever since he visited Sichuan right after the earthquake of 2008, mingling with those affected by the quake in the style of a Democratic politician. Wen is also generally associated with policies that aim at spreading economic growth through those parts of China that have not yet benefited much from the boom and in trying to riase levels of  equality in China.



He's also rare among Chinese politicians in interacting with the media through press conferences and of course, these two interviews with a western journalist. It is a rare opportunity to watch a senior Chinese political figure respond to questions and to try to piece together his world view.



ZAKARIA: Do you feel that the global economy is at this point stable and strong or do you worry a lot that there is a danger of the so-called double dip, the United States in particular could go back into a recession?



WEN JIABAO, PREMIER OF CHINA (through translator): Well, objectively speaking, I think the world economy is recovering, although the process of recovery is a slow and tortuous one. People may not have the same view on this matter, but I believe we will learn a lesson from the reality. I hope that there will be a quick recovery of the U.S. economy because after all the U.S. economy is the largest in the world. I have taken note of the recent policies and measures taken by President Obama including the program of doubling the United States' exports, and the massive investment in infrastructural development. I think these policies and measures are the ones on the right track, moving in the right direction. Although they came a little bit late, they still came in time.

This reminds me of the time when I took the big decision of advancing a massive stimulus package in China. Back then, people had different views concerning this policy, but now the progress has shown that our stimulus package is a successful one.



ZAKARIA: May I ask you what lesson you have drawn from the financial crisis? Have you lost faith in American macroeconomic management? A Chinese friend to me said, he said, we were like the students in class and we would always listen to what the Americans would tell us, and now we look up and we think maybe the teacher actually didn't know what he was talking about. 



WEN (through translator): In the face of the financial crisis, any person who has a sense of responsibility towards the country and towards the entire human race should learn lessons from the financial crisis. 



As far as I'm concerned, the biggest lesson that I have drawn from the financial crisis is that in managing the affairs of a country, it's important to pay close attention to addressing the structural problems in the economy.

China has achieved enormous progress and its development, winning the claim around the world, yet I was one of the first ones to argue that our economic development still lacks balance, coordination, and sustainability. This financial crisis has reinforced my view on this point.



On the one hand, we must tackle the financial crisis. On the other, we must continue to address our own problems, and we must do these two tasks well at the same time, and this is a very difficult one. China has a vast domestic market and there is great potential in China's domestic demand. China is at a stage of accelerated organization and industrialization. We can rely on stimulating domestic demand to stabilize and further grow the Chinese economy.

This requires us that we must seize the opportunities, speed up our development, and stabilize the Chinese economy, and on that basis, we must take a long-term prospective to address all these structural challenges in our economy.



As far as the U.S. economy is concerned, I always believe that the U.S. economy is solidly based, not only in a material sense, but more importantly, the United States has the strength of scientific and technological talent, and managerial expertise.

It has accumulated a wealth of experience in its economic development over the past more than 200 years, in spite of the twists and turns the united states, I believe will tide over the crisis and difficulties and we must have confidence in the prospects of the U.S. economy.

The recovery and further growth of the largest economy in the world, that is the U.S. economy, is in the interest of the recovery and stability of the world economy.



ZAKARIA: Your stimulus package was 10 times larger as a percentage of your GDP than the U.S. one. It was an extraordinary program. Is there a worry that it has produced a bubble in China, in real estate?

Are there dangers of inflation because the government spent so much money and what happens now that that stimulus is going to wear off, there will be less and less government spending?



WEN (through translator): From what you said, I think you have not seen our stimulus package in its full or in its entirety. I would like to say that our stimulus package has four key components:



1.   The first is massive public spending, structural tax cuts and infrastructural development.

2.   The second is the adjustment and upgrading of industrial structure in China.

3.   The third is scientific and technological innovation, and the development of emerging industries with strategic significance.

4.   The fourth is the improvement of social safety net.



The $4 trillion R&B grant investment does not all come from the government. Public finance only accounts for $1.18 trillion and the rest will come from the non-public sector and the fund-raising from financial markets.



The implementation of the stimulus package has ensured the continuance of steady and relatively fast economic growth in China. It has helped maintain the good momentum of China's economic development in the past 30 years, and it has helped us avoid major fluctuations in the process of China's modernization, because of a severe external shock.

At the same time, it has laid a solid foundation for future development of the Chinese economy. We are on high alert against the challenge that you referred to in your question.

Let me make three points:



1.   First, there is a possibility of inflation in China. That is why we have formulated the task of skillfully manage the relations between maintaining steady and relatively fast economic development, structural adjustment, and managing inflation expectations.

This is at the core of China's macroeconomic control. I do have worry for the management of inflation expectations in China, and that is something that I have been trying very hard to manage appropriately and well, because I believe corruption and inflation will have an adverse impact on stability of power in a country.

And these two both concern the trust and support of people in the government, and this is the perspective that I see the issue of inflation in China.

2.   Second, with implementation of the stimulus package, there are fiscal and financial risks at the level of local governments.

We have some financing vehicles of local governments. They have some debts, but this is not a new problem that took place after the outbreak of the financial crisis, rather this already came into being back in the 1980s.

Now, with the financing platforms of local governments in place, they have accumulated a total debt of about 7.6 trillion RMB Yuan and I can say that this debt at the local level is still within a range that we can manage, but it is important that we appropriately handle this matter to ensure that the debts at local governments level will not bring about risks in our public finance and in the financial sector.

The ratio budget deficit in China's total GDP is within 3 percent. The total debt in China versus GDP's ratio is within 20 percent range that is to say it's still in the range that we can manage.



3.   The third point is a more important one, that is all our investment now must be conducive to our economic structural adjustment, not the contrary. This concerns our long-term development prospects, and therefore, is of high importance.


ZAKARIA: In my last interview with Premier Wen in 2008, I asked him a question about the 1989 protests at Tiananmen Square and China's military response to the protests. Chinese officials aren't accustomed to be being asked about such controversial topics, but Wen Jiabao's answer was frank saying that political reform had to go along with economic reforms.

Since then Wen Jiabao has done something even more unusual. He has praised in writing a man named Hu Yaoban. Now this is important, Hu was general secretary of the Chinese Communist Party in the 1980s, known for his support for reform at a time when there were few political reformers in Chinese government.

He tried to rehabilitate people who had been persecuted during the cultural revolution and was accommodating towards students and intellectuals demanding more freedoms. He was ousted in 1987 by hard- liners for his laxness and liberalization.

When Hu Yaoban died in 1989, throngs of students gathered in Tiananmen Square to mourn his death. That crowd was the origins of the protest in Tiananmen Square. They stayed for almost two months until the Chinese government sent in the tanks.

Since then, Hu Yaoban's name has been erased from Chinese history until Wen Jiabao rehabilitated him. I asked Wen about that memoir he wrote and about political reform in China.


ZAKARIA: You wrote an article about your old boss, Hu Yaoban, which I was very struck by. In it you praise him. Do you think in retrospect that Hu Yaoban was a very good leader of China?



WEN (through translator): Yes, I think I have given a fair assessment of the history of this person. He made his own contributions to China's reform and opening up. I want to make the following three points:



1.   First, he vigorously advanced the debate surrounding the criteria in judging what truth is, and through that he has contributed to effort of freeing people's minds.

2.   Second, irrespective of various resistance, he took steps to free a large number of officials and (inaudible) who are wronged in the cultural revolution and third he himself took actions to advance China's reform and opening up.



ZAKARIA: You speak in your speeches about how China is not yet a strong and creative nation, in terms of its economy. Can you be as strong and creative a nation with so many restrictions on freedom of expression, with the Internet being censored? Don't you need to open all that up if you want true creativity?



WEN (through translator): I believe freedom of speech is indispensable, for any country, a country in the course of development and a country that has become strong. Freedom of speech has been incorporated into the Chinese constitution.

I don't think you know all about China on this point. In China, there are about 400 million Internet users and 800 million mobile phone subscribers. They can access the Internet to express their views, including critical views.

I often log on to the Internet and I have read sharp critical comments on the work of the government, on the Internet, and also there are commendable words about the work of the government.



I often say that we should not only let people have the freedom of speech, we more importantly must create conditions to let them criticize the work of the government. It is only when there is the supervision and critical oversight from the people that the government will be in a position to do an even better job, and employees of government departments will be the true public servants of the people.



All these must be conducted within the range allowed by the constitution and the laws. So that the country will have a normal order, and that is all the more necessary for such a large country as China with 1.3 billion people.



ZAKARIA: Premier Wen, since we are being honest, when I come to China and tried to use the Internet, there are many sites that are blocked. It is difficult to get information. Any opinion that seems to challenge the political primacy of the party is not allowed? Hu Yaobang, for example, was not somebody who could be mentioned in "The China Daily" until your own article appeared. It seems like all the restrictions, the vast apparatus that monitors the Internet are going to make it difficult for your people to truly be creative and to truly do what it seems you wish them to do.



WEN (through translator): I believe I and all the Chinese people have such a conviction that China will make continuous progress, and the people's wishes for and needs for democracy and freedom are irresistible. I hope that you will be able to gradually see the continuous progress of China.



ZAKARIA: You have given a series of very interesting speeches in the last few weeks, in the last few months. I was particularly struck by one you gave in Shenzhen, where you said, "along with economic reform, we must keep doing political reform."

This is a point you made in our last interview, but a lot of people I know in China, Chinese people, say there has been economic reform over the last six or seven years, but there has not been much political reform.

What do you say to people who listen to your speeches and they say we love everything Wen Jiabao says, but we don't see the actions of political reform.



WEN (through translator): Actually, this is a viewpoint that was put forward by Mr. Deng Xiaoping a long time ago and I think anyone who has a sense of responsibility for his country should have deep thinking about this topic, and put what he believes into action.

I have done some deeper thinking about this topic, since we last met. My view is that a political party after it becomes a ruling party should be somewhat different from the one when it was struggling for power.

The biggest difference should be that this political party should act in accordance with the constitution and the law. The policies and propositions of a political party can be translated into parts of the constitution and the laws through appropriate legal procedures.

All political parties, organizations, and all people should abide by the constitution and laws without any exception. They must all act in accordance with the constitution and laws. I see that as a defining feature of modern political system development.



I have summed up my political ideals into the following four sentences:

1. to let everyone lead a happy life with dignity,

2. to let everyone feel safe and secure,

3. to let the society be one with equity and justice and

4. to let everyone have confidence in the future.



In spite of the various discussions and views in society, and in spite of some resistance, I will act in accordance with these ideals unswervingly, and advance within the realm of my capabilities political restructuring. I would like to tell you the following two sentences to reinforce my case on this, or my view on this point, that is I will not fall in spite of the strong wind and harsh rain, and I will not yield until the last day of my life.



ZAKARIA: The currency issue is a difficult one, the Renminbi. So let me put it to you this way, despite assurances from China, the Renminbi has only appreciated 1.8 percent in the last two years.

Is it not in China's interests to allow for a more significant depreciation, because right now you are subsidizing exporters at the cost of the wages of ordinary Chinese workers, you're risking some inflation and it creates the very lack of balance that you talk about. So wouldn't it be good for China to allow a more substantial on Renminbi?



WEN (through translator): Allow me to make a comment on what you just said. I think your view still represents the view of the United States or to be more specific the view of a small number of members of Congress of the United States.

The Chinese economy and the U.S. economy are closely interconnected. Our bilateral trade has already reached $300 billion. U.S. investment in China has exceeded $60 billion. China has purchased U.S. "T" bonds worth about $900 billion.



No one will believe that the Chinese leadership does not follow closely the development of the U.S. economy. Yet some people in the United States, in particular some in the U.S. Congress, do not know fully about China.

They are politicizing the problems in U.S./China relations in particular the trade imbalance between our two countries. I don't think this is the right thing to do. I highly appreciate your giving me this opportunity of the interview, because you gave me the opportunity to further explain what the real situation is.



There are three points, which are not widely known with regard to exchange rate of RMB and Chinese trade surplus:

1.   First China does not pursue a trade surplus. Our objective in having foreign trade is to have balance and sustainable trade with other countries, and we want to have a basic equilibrium in our balance of payments.

This is what we have been saying and doing. In 2008, China's surplus in current account, it's ratio in GDP stood at 9.9 percent. In 2009, that figure dropped to 5.8 percent ending the first half of 2010 that figure further declined to 2.2 percent.



2.   Second, the increase of trade surplus of a country is not necessarily linked with the exchange policy of that country. We started the reform of RMB exchange rate regime back in 1994, and since then, the Chinese currency has appreciated by 55 percent against the U.S. dollar, and over the same time frame, the currencies of major economies and currencies of China's neighboring countries have all depreciated by a large margin.

China's trade has been growing fast over the same time frame. Actually, there is a period like that in the history of the United States, too. In almost 100 years between the 1870s and 1970s, the United States was a surplus country, and this is actually what happened for a country in a certain stage of development.



3.   The third point, which is a more important one and one that you are aware of, that is the trade imbalance between our two countries, is mainly structural in nature. China runs a trade surplus in processing trade, but a deficit in general trade. China has a trade surplus in trade in goods, but a deficit in trade in services.

We have a trade surplus with the United States and the European Union, but a deficit with Japan, the ROK and Asian countries.

Many of the Chinese exports to the United States are no longer produced in the U.S., and I don't believe that the United States will restart the production of those products, products which are at a low-end of the value-added chain.

Even if you don't buy those products from China, you still have to buy them from India, Sri Lanka, or Bangladesh, and that will not help resolve the trade imbalance between our two countries.



I remember that you gave the example of iPod player in the United States, an iPod player is sold at $299 in the States, but the Chinese producer only gets $4 in processing fee.

There is another point that I think you may not be aware of, a point that many of the members of the U.S. Congress are not aware of, that is out of the 50,000 U.S. companies registered in China, 22,000 of them are export companies, and to impose sanctions on export companies in China is tantamount to imposing sanctions on those countries.

FAREED ZAKARIA:  Your country has grown at 9.5% for 30 years, the fastest growth rate of any country in history.  What is your secret? What is the Chinese model?

WEN (through translator):  [Reform and opening up] Socialism can also practice market economy.  We give full play to the basic role of market forces in allocating resources under the macroeconomic guidance and regulation of the government.

We have gained one important piece of experience over the past 30 years is to ensure that both the visible hand and the invisible hand are given full play in regulating market forces.  If you are familiar with the classic works of Adam Smith, you know that there are two famous works of his: The  Wealth of Nations, and the other, on ethics, The Theory of Moral Sentiments.

 The  Wealth of Nations, deals more with the invisible hand, while The Theory of Moral Sentiments deals with social equity and justice.  In the second book he wrote that it is very important for the government to play the role of fairly distributing the wealth among the people.  If, in a country, most of the wealth is concentrated in the hands of a few, then uch a country can hardly witness harmony and stability. 

This same approach applies also to the current economic problems in the USA:  we need not only the visible hand, but the invisible hand to right the balance.

--FAREED ZAKARIA: GPS:  Aired October 3, 2010 - 10:00   ET