China Announces Priorities for Next Five Years

China Announces Priorities for Next Five Years
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This past Saturday, Premier Wen Jiabao delivered his 2011 "Report on the Work of the Government" to the 3,000 delegates gathered in Beijing for the National People's Congress. The report, delivered annually, is comparable to U.S. President's State of the Union Address, laying out the successes of the past year and the direction the government plans to take in the next year. But, as this is a year that the Congress will issue the next Five-Year Plan (the 12th), Wen's report looks beyond 2011, down the road as far as 2015.

Parsing the "Report on the Work of the Government" is no easier than parsing the State of the Union address. It is long on ideals, goals and aspirations, and short on details, short on plans for implementation. It reflects, we can assume, the concerns of the leadership; and it reflects, no doubt too, what the leadership perceives the people may expect from the government in the coming years.

Yet there is one important difference with the State of the Union address: it presents the views of one person, the president, and perhaps those of his party's leaders -- but not those of the opposition party; the "Report on the Work of the Government" presents the collaborative views of the entire CCP leadership. What this means simply is that while the goals put forward in the "Report" might never be realized, it won't be because an opposition party stands in the way.

Bulleted below are points from the "Report" that strike me as significant or interesting, followed by a brief comment or two.

  • GDP is to grow by 7% annually over the next five years.

This has caught most China watchers by surprise, as the 7% target is down from the 7.5% figure of the previous 11th Five-Year Plan (and down from the 8% figure for 2010). The day after Wen delivered the report, Xinhua News led with the headline: "China Prepares to End GDP Obsession." That's probably going too far, but the question remains, why the reduction?

Without getting into the details of China's present economic conditions, I'd suggest: 1) Inflation has been hitting China hard -- this past January alone the inflation rate came in at 4.9%. 2) Economic growth has been unfriendly to the environment; air and water pollution worsen with each passing day. And, 3) the "GDP obsession" has encouraged local officials to meet the GDP goal, no matter the costs. Those costs include turning a blind eye to environmental violations by local industries that contribute to increased GDP -- thereby compromising the health and well-being of the people; and "protecting" and colluding with those who most benefit the local economy (e.g, land developers, factory managers, industrialists).

  • Prices are rising too quickly and should be stabilized.

If the Chinese government is obsessed, as Xinhua suggests, with GDP, it is equally obsessed with social stability. Food prices, in particular, have been rising. Rising food prices can lead to rising dissatisfaction, even unrest, as the Middle East has shown. Beijing knows that much of its legitimacy rests on its ability to make food available to the country's whopping 1.3 billion people.

  • Government funding for rural areas, farmers, and agriculture must be increased.

The quality of life in China has improved dramatically in the past ten years. But rural China has enjoyed many fewer benefits than urban China. The "development gap" between urban and rural areas has been a growing concern of the government, as rural dwellers give angry voice to their relative impoverishment and migrate in huge numbers to the city. This "urban-rural" divide is part of what is China's most pressing problem: the income gap between rich and poor.

  • The widening income gap must be closed: the government will raise the minimum wage of workers, increase the subsistence allowance for urban and rural residents, reduce the tax burden on low- and middle-income people, and control wage scales in industries where incomes tend to become disproportionately high.

China's newly rich are prospering, living in gated communities, driving expensive foreign automobiles, wearing Rolexes, carrying Prada bags, and drinking Lafite 1869s. Those are the Chinese we read about in the Western press. But the per capita GDP in China, according to UN figures, is still under $4,000 (compared to $45,000 in the U.S.) That means a whole lot of people, not just in the countryside but in the major metropolises as well (living in plumbing-less shacks tucked away from the shiny new construction), are barely getting by. By putting more discretionary income into their hands, the government looks to enable many more people to share in the country's new prosperity. The measures here would also have the effect of promoting a more robust, domestic consumer economy, and thus reducing the country's dependence on cheap exports, an aim of the present leadership. Finally, it's surely not lost on Wen Jiabao and others that the present income gap carries with it the potential for serious unrest.

  • The social security system must be expanded and improved and the benefits raised: basic pension insurance and basic medical insurance systems should cover all urban and rural residents; and low-income housing should be made available to 20% of the country's urban households.

The yawning income gap requires that there be a more highly developed and comprehensive safety net than what China now has. Protests about the lack of health care, lack of care for the aged, and unaffordable housing have continued unabated for the past five years. These protests threaten social stability, or what the Chinese government calls a "harmonious society." How to fund an expanding safety net has been an ongoing issue for the government.

  • Conserve natural resources and protect the environment: the country must increase the proportion of non-fossil fuels in primary energy consumption to 11.4%; reduce energy consumption per unit of GDP by 16%: and reduce CO2 emissions per unit of GDP by 17%.

Here is recognition that China's present economic model is not sustainable. Growth must be slowed -- hence the reduction from 8% to 7%. It is recognition too that air and water pollution is literally killing Chinese people -- and severely limiting the people's quality of life. Protests over polluting industry, toxic air, and contaminated water occur routinely throughout the country. Social stability, again, is clearly a factor in the government's concern here.

China has been on a path to reduce its dependence on coal and increase its use of renewables. And although the dependence on coal will necessarily persist for decades (as it now is the source of 70% of China's energy), the government hopes that 11.4% of energy consumption (up from 8.3% in 2010) will come from newer, more efficient, cleaner sources by 2015; the goal for 2020 is 15%. Environmental preservation and protection is expected to be a major theme of the 12th Five-Year Plan.

  • The government must combat corruption and promote clean government. Officials who abuse power for personal gain, neglect their duties, or infringe upon the rights of others will be prosecuted and punished.

The government here is saying to the people, "we hear you." Official corruption is endemic, the source of considerable protest in China. Complaints that officials develop cozy relationships with local land developers, factory managers, and polluting industries, and ignore the rights of the local people are common. If the government is serious about combating corruption, a bold first step would be to issue a strongly worded proclamation (something with teeth) to the effect that the assessment of officials will henceforth be tied to their effectiveness in upholding environmental standards; in providing for the ill, the infirm, and the aged in their locales; and, as Wen Jiabao suggests in his report, in "strengthening laws and regulations to safeguard the people's interests."

The present system, in which promotion depends almost exclusively on whether the official meets -- or exceeds -- the GDP target, is one that places the well-being of the people at a too distant second to economic growth.

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