China's 5-year plan may face reality check, analysts say

In the run-up to the country's annual parliament, which started over the weekend, China devoted considerable resources to promoting its "13th five-year plan."

In October, it rolled out a sing-along music video in English. Animated characters, including one that resembled David Bowie, trumpeted the chorus line: "If you want to know what China’s gonna do, best pay attention to the shi san wu [13-5]!”

The viral video announced that the Chinese Communist Party’s social and economic policies were going to be finalized soon. 

By the end of the ongoing parliament session on March 16, the National People's Congress (NPC) is expected to approve an economic and social development blueprint for 2016-20 that will guide policy at all levels of government and state-owned enterprises.  

After decades of growth at a breakneck pace, China's economy grew by 6.9 per cent in 2015, the slowest growth in more than a quarter of a century.

Earlier this month, Moody's Investors Service cut China's credit rating outlook from "stable" to "negative," citing rising government debts, a fall in reserve buffers and uncertainty about authorities' capacity to implement reforms as main reasons for the downgrade. 

China's leadership has indicated it is well aware of the pressure it faces to implement sound fiscal and monetary policies. 

Premier Li Keqiang delivered a speech on economic policies to some 5,000 congress delegates and government consultants on Saturday. 

"The larger the economy grows, the greater the difficulty of achieving growth," Li said.

"Every percentage point of GDP growth today is equivalent to 1.5 percentage points of growth five years ago or 2.5 percentage points of growth 10 years ago," Li told delegates in the Great Hall of the People.

Li's speech stressed the importance of supply-side structural reform, of addressing overcapacity in the steel and coal industries, and of cutting government red tape and encouraging business startups. 

The Communist Party of China's 13th five-year plan draft, released on March 5, set an annual growth rate target of 6.5 per cent until 2020.

Amid global financial problems and slowing Chinese export growth, the government is aiming for more sustainable development driven by domestic consumption.

If reforms fail, analysts say China is in danger of succumbing to the so-called middle-income trap, in which a country struggles to push past a certain income level.

The draft plan calls for the creation of more than 50 million new urban jobs, improvements to expressways and high-speed railways, and to have the science-and-technology sector make up 60 per cent of economic growth.

Research and development spending would make up 2.5 per cent of gross domestic product per year, according to the plan. 

It also reconfirmed pre-existing targets to double per capita income and gross domestic product by 2020 from 2010 levels. 

Analysts had mixed expectations on whether the 13th five-year plan would bring about significant improvements.

"The plan will promote decentralization, but the reality is likely to be greater centralization. More infrastructure will be built, mainly to enhance intraregional development - for example, around Greater Beijing," according to an analysis published by McKinsey. 

The plan aims to raise productivity in the workforce, but there is concern that "implementation will be left to local administrators and that the regions requiring the most help will have the lowest amounts of money to invest in reskilling the workforce," the article said. 

Hu Xingdou, professor of economics at the Beijing Institute of Technology, also raised concerns that local officials would be more likely to exaggerate figures in order to please the central government. 

"The central government has made local government officials promise to get their jobs done. If they can't reach the goals, they would lose their jobs. But whether the numbers [local officials submit] will be real could be the next serious issue," Hu told dpa. 

Other critics said the government's plan is too heavyhanded, and that regulators should instead allow the free market to play a greater role in guiding the economy. 

"The five-year plan is a heritage from the [socialist] planned economy. I don't think it is meaningful," said Wu Qiang, professor of politics at Tsinghua University in Beijing. 

"The targets are also a bit inconsistent with the [current economic situation]," Wu told dpa. 

Although the National People's Congress is derided as a "rubber stamp" parliament by critics, some delegates do raise concerns, and admit that China's economic transition will be difficult.

"In any society, monopolies [such as those held by state-owned enterprises] will prevent development. So we should change this situation," said Li Mei, a delegate from northwestern Shaanxi province. 

"We should support small- and medium-sized enterprises because they are the real impetus for the development in a society," Li told dpa. 

Li also said China should welcome foreign enterprises instead of considering them a threat to its economy. 

"Through competition, there comes motivation for development," she said. 

Last update: Wed, 09/03/2016 - 07:48

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