Clifford Coonan: Beijing looks close to home for answer to global meltdown

It may only be a rubber-stamp assembly that gathers once a year, but if ever a speech to parliament highlighted the shifting global power structure in the past decade or so, it was the address by the Chinese Prime Minister, Wen Jiabao, to the National People's Congress yesterday.

Mr Wen recognised the global crisis would have a serious impact on China, but the fact that he is politically comfortable saying that his country's economy would still keep growing at 8 per cent this year is a sign that China's problems are less severe than those facing economies in the West.

You can see this on the streets of Beijing and Shanghai, where things are starting to slow down but not appreciably so.

Compare that with the US – Goldman Sachs has forecast that the US economy could decline by 8 per cent just in the current quarter alone. One of the key reasons why Mr Wen can be cautiously upbeat is the fact that China has such a high savings rate. China has trillions of dollars in foreign currency reserves and since the credit crunch began, the West has looked to China to help bail it out after its years of running up bad credit card bills.

China responded to the global financial crisis with the biggest fiscal stimulus programme the world has ever seen – four trillion yuan (£414bn) worth of infrastructure investment that could ultimately prevent the rest of the world sliding even deeper into the mire of recession.

Years of strong private-sector growth has eroded China's social welfare system; pensions, healthcare and child support are massively underfunded. The Congress will approve double-digit percentage rises in spending on education, healthcare and welfare. This will free up consumer cash to buy goods made in China, so the theory goes.

Transforming a reliance on exports into a consumer boom at home involves major structural change, but change is swift in China and consumers can be persuaded to buy home-made products and change the focus of economic growth. To spend its way out of trouble, China has increased its budget deficit. However, Mr Wen forecast the government's budget deficit this year would be about 3 per cent of China's economy – compare this to 12 per cent in the US.

While analysts say China cannot be expected to carry the world on its shoulders, good news from the world's fastest growing major economy can only be a fillip to the rest of the world.