China aims to prevent unrest by pushing a more 'inclusive' growth
At this week鈥檚 annual National People鈥檚 Congress, top leaders have been stressing issues such as skyrocketing house prices, worrying inflation, and workers鈥� wages.
Jobseekers looked at employment information Thursday at a job fair for college graduates in Kunming, Yunnan province. China plans to increase spending on education, social security and employment by 14 percent this year, the finance ministry said on Saturday.
Reuters
Beijing
As policemen fan out through cities across China to snuff out the slightest sign of North African-style protests, the country鈥檚 political leaders are pledging to tackle the economic problems that might spark popular discontent.
At this week鈥檚 annual National People鈥檚 Congress (NPC), China鈥檚 parliament, speakers from Premier Wen Jiabao on down have been stressing issues such as skyrocketing house prices, worrying inflation, and workers鈥� wages even above the once-sacred economic growth rate.
While it has so far been 鈥渁bsolutely necessary to make maintaining growth a priority 鈥� now we want to put more emphasis on ensuring and improving people鈥檚 livelihood,鈥� the country鈥檚 top economic planner, Zhang Ping, told reporters last weekend.
This might be easier said than done, some independent economists are warning. 鈥淭hese changes will require a fundamental shift away from China鈥檚 current growth model,鈥� says Michael Pettis, professor of finance at Peking University.
Behind the shift in emphasis is a desire to ensure social stability, explains Zhao Xiyun, Deputy Director of the School of Finance at People鈥檚 University in Beijing. 鈥淭hat is the single most important thing for the government and the [ruling Communist] party,鈥� he says.
And that stability could be threatened, the authorities worry, if citizens grow dissatisfied with their living standards. 鈥淥ur work on income distribution, social security, schooling, and medical care still fall considerably short of the demands of the people,鈥� admits the report that the National Development and Reform Commission 鈥� the government鈥檚 planning ministry 鈥� presented this week to the NPC.
The government has often talked in the past about improving the quality of China鈥檚 economic growth, and of ensuring a better balance between investment, consumption, and exports 鈥� the three engines of that growth.
More often than not, however, local governments have ignored Beijing鈥檚 words and 鈥渉ave just sought faster economic growth,鈥� says Professor Zhao.
The NDRC鈥檚 report is blunt in this respect. 鈥淟ocal governments鈥bsolutely should not seek rapid growth at all costs or compete for the fastest rate,鈥� it admonishes.
China鈥檚 economic growth has averaged 11.2 percent a year over the last Five Year Plan which has just come to an end, Mr. Wen said in his report to the NPC. 鈥淏ut we are keenly aware 鈥� that our development is not yet well balanced, coordinated or sustainable,鈥� he cautioned.
A more 'inclusive' growth
He urged measures to make the country鈥檚 extraordinary growth more 鈥渋nclusive,鈥� to ensure that everybody benefits more equitably from China鈥檚 ballooning wealth.
Top of the agenda, say planners looking to the next five years, will be policies to increase household incomes and consumer demand, both to improve living standards and to balance the engines driving growth rates.
In a sense, says Zhao, the government has no choice. As US and European markets struggle to recover from the global economic crisis 鈥渢hey are not going to increase their imports from China as fast as they once did,鈥� he points out.
鈥淲ith less room for increased exports in future, the government has to reorient growth from foreign markets to the domestic markets,鈥� he adds.
At the same time, suggests Arthur Kroeber, head of the Dragonomics economic consultancy, market forces will slowly erode the predominance of investment as a growth driver simply because one day there will be little left to build in China.
鈥淎s they get closer to the amount of stuff they actually need, the returns on such investments will fall,鈥� he predicts. 鈥淢arket forces will start moving in another direction and policies to encourage consumption will have a better chance of being effective.鈥�
How to raise income
But if consumption accounts for just 35 percent of GDP in China (about half the US figure) that is because household incomes are low, and that is no accident, argues Professor Pettis.
Wages have risen more slowly than productivity for the past decade; an undervalued currency has helped exporting manufacturers but made imports more expensive for consumers; and low interest rates have penalized individual savers while helping businesses borrow, Pettis points out.
鈥淭o raise consumption you must raise income, but to raise income you should reverse these three policies and they have been what created this growth miracle,鈥� he argues. 鈥淚t has always been hard for countries to get off investment-driven growth models.鈥�
Nobody is expecting any sudden shifts. By plugging its point about reorienting growth and raising living standards 鈥渢he government wants to create an atmosphere,鈥� says Zhao. 鈥淭hey are saying now that the main task is to do this, and then they will try to come up with key issues鈥� on which to make concrete policy.
Making such changes, says Mr. Kroeber, will take five to 10 years. 鈥淚t is still largely at the level of rhetoric,鈥� he says. 鈥淭hey have identified raising household incomes as a major objective 鈥� but for the next five years we will see not so much action as policy formation.
鈥淭hey are a bit more serious than they were,鈥� he adds, 鈥渂ut we won鈥檛 see much impact for a while.鈥�