China's economic blueprint Take five
The prime minister lays down how China’s economy is to look in 2015
“GRANDPA WEN”, China’s prime minister, Wen Jiabao, is a hands-on patriarch. In his annual speech to China’s National People’s Congress on March 5th he reflected on the government’s work over the past year, its priorities for this year, and its new five-year plan, which the congress must ratify. Like a good guardian, Grandpa Wen neglected no aspect of his wards’lives.
On top of the stern duties of safeguarding price stability and national security, Mr Wen promised to enhance national creativity, enrich philosophy, arouse an innovative spirit, resolutely oppose extravagance—and ensure one hour of physical exercise in schools every day.
The aim of all this enhancing and arousing is, by the end of the decade, to turn China into a xiaokang society. The term traces back to the Confucian “Book of Songs”, and suggests a moderately prosperous society that can begin to enjoy the fruits of its labours.
To help China on its way, Mr Wen set a target for economic growth of 7% a year for 2011-15. The figure should not be taken too literally. A target of 7.5% for the past five years did not stop China growing by more than 11% over that period. Still, the target is lower than it was in the previous plan, suggesting that the pattern of growth now matters as much as the speed.
Indeed, Mr Wen said the country’s development is neither balanced, co-ordinated nor sustainable. It relies too heavily on investment and on swallowing natural resources and too little on consumer spending. The income generated is unevenly divided: between profits and wages, rich households and poor, coastal provinces and inland regions, the cities and the countryside.
The prime minister also admitted that China had failed to meet at least three targets he set in the previous five-year plan. Two related to China’s service industries, which last year accounted for 43% of its GDP and 35% of its employment. Countries at China’s stage of development typically have service sectors approaching three-fifths of GDP.
Most of China’s more lucrative services markets, such as for telecoms, are dominated by stateowned enterprises (SOEs). The “investment hunger” of the SOEs, which borrow cheaply from state banks as well as recycle outsized profits, is a chief cause of China’s unbalanced development. Mr Wen promised to implement no fewer than 36 guidelines for opening the “glass doors” preventing private investment in many fields not explicitly reserved for the state. Such fields include transport, power and municipal utilities.
Regrettably, in the year ahead these liberalisations may be offset by efforts to stop the economy from overheating. The government is trying to contain inflation by squeezing credit. And although it urges banks to keep lending to smaller companies, lenders are sure to turn private borrowers away before disappointing state-owned ones. If necessary, Mr Wen says, the government will also control prices by “administrative means”.
Liberal-minded types will take some comfort from Mr Wen’s promise to “press ahead” with making the yuan convertible for capital-account transactions, a commitment missing from his previous two reports. He also promised to push forward with the “market-based reform” of interest rates. The hope is that freer rates would better reward household savers, discourage excessive investment and possibly allow private borrowers to get loans from state banks by offering to pay higher rates. But Chinese leaders have often before promised to liberalise rates.
China’s idiosyncratic pattern of development is never easy to categorise. To some it represents a new model of state capitalism: “a Beijing consensus” to rival the “Washington consensus” first identified by John Williamson of the Peterson Institute for International Economics.
Others think China is moving closer to the Washington model. Arthur Kroeber of Dragonomics, a consultancy, argues that it has made solid progress on eight of Mr Williamson’s ten commandments, including fiscal discipline and an openness to foreign trade and direct investment. To follow through on its promise to liberalise interest rates would make a welcome ninth.