12th 5-year plan - more details from Outlook Weekly
The drafting of the 12th 5-year plan will be one of the main policy issues to watch in 2010. With that in mind, here are some points from another Outlook Weekly article entitled ‘6 major areas for the 12th 5-year plan’:
‘On the one hand, there’s a lot of positives from the 11th 5-year plan. GDP and trade have both increased significantly. On the other, it’s difficult to be optimistic about the current economic model. Investment’s share of GDP has risen from 35.3% in 2000 to 43.5% in 2008. Consumption as a share of GDP was 51.8% in 2005, in 2008 it had fallen to 48.6%. Reliance on foreign demand and the consumption of energy and raw materials have both increased.
The current economic model is difficult to sustain. The imbalance between investment and consumption, between industry and services, and between foreign and domestic demand, are increasingly pronounced. China is entering a period of weak external demand and rising trade tensions, reliance on foreign demand as a driver of growth is not an option.
For various reasons, the share of consumption in China’s GDP has remained low, including compared to other developing countries like Brazil (75.7%), India (64.9%) and Russia (67.7%).
Increasing consumption requires systemic reform, but with that reform, it is possible we will see the share of domestic consumption in GDP increasing 10-15% in the next 5-years.
Increasing the pace of urbanisation will be an important component of boosting domestic demand. One government researcher with whom we spoke said ‘in the modernisation of the economy, it is industrialisation that provides the supply, and urbanisation that provides the demand.’
Under normal circumstances, when GDP/capita hits $3000 a country has an urbanisation rate of about 60%. In China, GDP/capita has hit $3000, but the urbanisation rate lags behind at 45%. Industrialisation has raced ahead and urbanisation has lagged behind, this is why China has a problem of excess supply and inadequate demand.
One government researcher we spoke to said that if the 12th 5-year plan could break up the separate urban and rural social benefits systems, China could add 10-15% to its urbanisation rate over the course of the plan.
The 12th 5-year plan will also be a chance to improve the level of public services, with three particular areas for focus. First, increasing the supply of public services. Second, employing enhanced public services to address the contradictions in society. Third, paying special attention to employment services.
Finally, the 12th 5-year plan will have to address the issue of governance. The existing governance model, which encourages local government to pursue GDP growth and investment at all costs, is one of the reasons why some of the more forward looking objectives in the 11th 5-year plan have not been achieved. One government researcher with who we spoke said: ‘the biggest challenge facing us in the 12th 5-year plan is not changing the economic model, but rather changing the governance model.’
A few interesting points I took away from this. First, the suggestion of a somewhat ambitious target on raising the level of domestic consumption in GDP. A 10-15% increase seems even more ambitious when you consider that domestic consumption’s share in GDP has, remarkably, fallen over the course of the last plan.
Second, the attention to public services and especially breaking down barrier between access to services in the city and countryside - which I take to be a reference to ending the system whereby migrant workers are not entitled to the same level of social services as the local population. This would be a major step forward for the effective management of an accelerated process of urbanisation.
Finally, the point about governance reform is, as the author suggests, crucial. Changing the economic system means changing the incentives of the people who govern that system. As many of those people benefit from the opportunities for graft and corruption that are intimately linked to the current economic model, this will be easier said than done.