New Five-Year Plan Outline Signals Shift in China’s Course

By staff reporters Zhang Jin, Kang Weiping and Li Qiyan

Eleventh Five-Year Plan for Economic and Social Development, which refocuses the country’s philosophy of development to give more priority to social and environmental stability. Nearly 98 percent of the representatives voted for the plan.

The outline of the plan suggests that China’s leadership has agreed that a clearer separation between the government and the market is key to healthy economic development in the long term. Analysts say this stance signals a new era in China’s economic reform, since the government has had a heavy hand in the past twenty years of transitional growth.

But analysts also see many daunting challenges along the road ahead: how to balance the needs of different interest groups to ensure that reforms progress smoothly, and how to clarify the specific means toward reaching the new stated goals.

The new Five-Year Plan will prioritize reforms of governance, corporations, financial and fiscal policy. “ This is actually putting the administrative, system-related reforms at the top of the agenda,” said Ma Kai, director of the State Development and Reform Commission, the country’s top economic policymaker.

“Reform has entered a difficult stage in which it must balance relations between different interests,” Ma told in an exclusive interview. “Without administrative reforms, other reforms will not be able to succeed.”

For example, he said, China must establish a sound payment system for the central government to provide subsidies to local governments, so as to alleviate local fiscal pressures. Such pressures have often  provided perverse incentives for local officials to engage in unnecessary, often wasteful economic expansion. To do that, it must be clearer what public services the government must provide and in what spheres it should not interfere.

The Plan also emphasizes a shift to more balanced development after two decades of policies focused heavily on economic growth. To that end, it introduces new means by which to measure progress, including human and social development, resources and the environment , and public services. The Plan estimates that GDP growth will level off at about 7.5% per year, significantly lower than actual growth rates in recent years.

“We will achieve this primarily through the market: government will try to create sound macroeconomic, systematic and market regimes to help the market correctly allocate resources,” Ma said.

As China focuses on building an energy-efficient and environmentally friendly society, it will pay more attention to several current indices, such as energy consumption per unit of GDP and pollutant emissions. “That will further strengthen the government’s responsibility,” Ma said, as the Plan uses many such restrictive induces in its revised system for a comprehensive assessment of local governments.

Upgrading industrial infrastructure is also a focus of the new Plan, which calls for a new focus on quality over quantity in light of unsustainable environmental and energy practices in the past. “In the process, however, the government has interfered too much,” said Ma. “The market should have more of a role in these upgrades.”
 
The plan also puts a new priority on the services industry. According to Ma, “Industrialization does not only mean a rising proportion of industry in the national economy; it also means an improved services sector and more labor shifted to this field.”

“Due in part to high transaction costs and the overall low efficiency of the national economy, growth in the services sector has lagged behind the general economy,” Ma added. For that reason, the Plan suggests speeding up infrastructure projects involving transportation, logistics, finances, commercial services, and information management to give the sector a boost. 

The Plan also addresses the need to narrow the regional development gap. The new national blueprint will focus not on bridging the economic gap between richer and poorer regions, but on provision of public services and higher living standards specifically in economically disadvantaged areas, Ma said. He added that given existing regional characteristics, the government should apply different policies governing fiscal policy, land reform, investment, industry and population management  in different areas. Economic growth, he said, should not be the universal target of all regions.

The Plan also emphasized a pre-emptive approach to environmental protection. “We are spending heavily now to repair what was damaged in the past,” Ma said. “That is a hard lesson for us to learn.”

In issues such as technological development and balanced trade, Ma commented that, “Technological innovation is the core competitive edge for our country in the future,” said Ma. “We will not stand out in global competition if we cannot secure core technologies with independent intellectual property rights.”

On the subject of trade issues, Ma said domestic demand must increase in conjunction with foreign trade to reducepressure from other countries on China’s textile exports, currency revaluation, and energy policies.

English version by Xin Zhiming and Lauren Keane