Wen Words Matter

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His economic commentary may not cause as much speculation and anxiety as that of U.S. Federal Reserve Chairman Alan Greenspan, but the words of China's Premier Wen Jiabao have taken on new portent in global financial markets. The fast-growing Chinese economy, the world's sixth largest, is experiencing irrational exuberance, mainland style, and it's up to Wen to reassure everyone that Beijing can ease the country's growth rate from last year's torrid (unofficial) rate of 11.5% to single-digit levels—and do so without causing a crash that slashes China's demand for imports.

On a trip to Europe last week, Wen made soothing, Greenspan-like sounds, saying China's outlook was "good on the whole" while noting "excessive" credit growth and overinvestment in some economic pockets, such as construction and steel manufacturing. He promised "resolute" measures to curtail profligacy. Indeed, Beijing has already made some moves. Regulators have increased banks' reserve requirements, reducing the amount of cash available for loans, and the central government is trying to curb rampant unauthorized development by local governments, promising punishment for those who ignore stop signs. Late last month, several Communist Party officials and a Bank of China manager were fired after they bypassed normal procedures to get loans for a steel plant in Jiangsu province.

Wen's words did little to settle debate over the extent of China's overheating or the prospects for a soft landing. The latter is "possible but difficult," says Morgan Stanley's chief economist for Asia, Andy Xie. Because of the country's underdeveloped capital markets, "China doesn't have the instruments to fine-tune the economy," he says. And what does Greenspan think? Chinese authorities "are wholly aware of a rate of growth in a number of industries which are not sustainable," he said last week. With unruly markets hanging on their every word, both Greenspan and Wen are being careful not to overpromise and underdeliver.