What do you Know about China?

Topographic map of East Asia.
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On Monday, March 14th, 2011, the Chinese government passed the Twelfth Five-Year Plan which seeks to: address rising inequality and create an environment for more sustainable growth by prioritizing more equitable wealth distribution, increased domestic consumption, and improved social infrastructure and social safety nets. The plan is representative of China‘s efforts to rebalance its economy, shifting emphasis from investment toward consumption and from urban and coastal growth toward rural and inland development. The plan also continues to advocate objectives set out in the Eleventh Five-Year Plan to enhance environmental protection, accelerate the process of opening and reform, and emphasize Hong Kong’s role as a center of international finance.

Following are the highlights of the draft of the plan, which was distributed to the media prior to the opening of the Fourth Session of the 11th NPC.

— Population will be controlled below 1.39 billion;

Urbanization rate will reach 51.5 percent;

— Value-added output of emerging strategic industries will account for 8 percent of GDP;

— Foreign investment is welcomed in modern agriculture, high-tech and environment protection industries;

— Coastal regions to turn from “world’s factory” to hubs of R&D, high-end manufacturing and service sector;

Nuclear power will be developed more efficiently under the precondition of ensuring safety;

— Construction of large-scale hydropower plants will gain momentum in southwest China;

— Length of high-speed railway will reach 45,000 km;

— Length of highway network will reach 83,000 km;

— A new airport will be built in Beijing;

— China to build 36 million affordable apartments for low-income people.

Main Provisions of the 12th Five Year Plan (2011-2015). In the new five-year plan, the government assumes the acceleration of a restructuring of the economy towards more sustainable and consumption-driven models based on the development and growth of higher value-added sectors with a special focus on more a balanced distribution in society of the benefits of China’s economic successes. It contains five main requirements: transformation and adjustment of the economic structure, scientific and technological innovation, improvement of people’s livelihoods, a resource-saving and environmentally friendly society and a strengthening of the policy of reform and openness.

The target for average annual GDP growth is 7%, slightly lower than the 7.5% figure adopted in the previous plan. The target for the 11th Five Year Plan was exceeded despite the repeated efforts to stimulate domestic consumption. For the next term, the more probable situation is the continuation of the proven model based on huge investment projects (the plan contains a long list of infrastructure, transportation, industrial, energy and mining projects) while maintaining a meaningful position towards export-oriented manufacturing in the economy. Other targets include creating 45 million new jobs in urban areas, keeping the registered urban unemployment rate below 5%, stabilising the inflation rate and increasing by four percentage points the share of services in GDP. The plan also predicts an improvement of people’s livelihoods through the achieve of targets such as increasing urban residents’ disposable incomes and rural residents’ net incomes per capita by about 7% annually, covering by pension schemes all rural residents and 357 million urban residents and increasing by three percentage points the join rate for basic medical insurance, both urban and rural.

The crucial fields for the future development of China are education and innovation. In education, many reforms were implemented in the previous plan, with the most significant change related to higher budgetary spending on education. The plan set a few important quantitative targets. Assuming that a nine-year compulsory education will embrace 93% of people of school age, high school gross enrolment rates should reach 87%. The qualitative goals of better and more affordable access to education and improved skills for graduates will
serve national development needs. Among those needs, the top priority is the steady improvement in national innovation capability. In the field of innovation, China plans to increase expenditures on R&D to 2.2% of GDP and has set an ambitious goal of 3.3 patents per 10,000 people. Achieving those goals would mean that China would be a world superpower in innovation.

There are huge expectations related to China’s plans in the field of energy and environment. Recently, China became the world’s biggest emitter of CO2, despite efforts during the last five years to reduce the energy-intensity of the GDP. For the next five years, the target is the reduction of energy consumption per unit of GDP by 16%. It also assumes that carbon dioxide emissions per unit of GDP will be cut by 17% as well as a reduction of emissions of other greenhouse gases. However, these cuts would only slow the rise in the country’s absolute amount of emissions. The main measure to achieve these goals is the proportional increase of non-fossil fuels to 11.4% of the overall primary energy usage. Today, China is the world leader in building new energy capacity based on renewables. Implementation of the new plan also means further development of its potential in wind and solar technology, sectors in which China could be a more competitive supplier for the world market.

The new five-year plan could be perceived as an attempt to transform the Peoples Republic of China  (PRC’s) economic and social development model. Fast and stable economic growth remains the goal, but a visible emphasis on social reforms, including mainly social insurances (medical, old-age insurance and cheap housing), is a sign that China’s leaders are aware that it’s high time to transform the economy from a heavy reliance on investment and export towards higher domestic consumption. To achieve this goal, the nation’s sense of economic security must be improved. At the same time there is a need to increase the efficiency of the economy, which will require skilled labour and innovation. This is particularly important on one hand for an aging Chinese society, which faces the problem of a smaller workforce and concerns about the shortcomings of its pension system. On the other hand, China is facing an influx of rural residents to urban areas. It is estimated that within the next 20 years 400 million people from rural areas will be settled in urban areas. This is the reason why  creating more jobs in urban areas and cheap housing for poor people are being taken into account. Ambitious plans for environmental protection are also perceived as a step in improving the efficiency of China’s economy.

The 12th Five Year Plan could also be seen as a kind of testament prepared by Chairman Hu Jintao and Prime Minister Wen Jiabao who will be replaced in 2012 and 2013 by the so-called fifth generation of Chinese leaders. One of the key expressions that is used in the new Five Year Guideline is “scientific development.” It could be perceived as Hu Jintao’s contribution to the theory of the so-called socialism with Chinese characteristics as was done by previous PRC leaders. The concept of scientific development is vague but generally refers to the so-called people-oriented policy. It means that the focus of Chinese leaders has shifted from purely economic growth to social issues. But in reality, they realize that sustaining fast economic growth for China now as well as in the near future depends on investment and export-oriented manufacturing. Changes in the mode of economic  development will depend especially on the results in implementation of the plan in terms of innovation, energy and environment and increased social spending, which might lead to incremental changes in the structure of the Chinese economy.

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