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Besides Achievements, Nine Challenges for Next Five Years

Mar 06, 2011
  • Cao Li

    Professor, CPC Party School

Unlike previous Five-Year Plans that focused on specific economic programs, the 11th Five-Year Guideline, officially titled “the 11th Five-Year Guideline on China’s Economic and Social Development”, was China’s first strategic framework for national economic and social development. In agreement with the steps of the socialist economic system reform, it was intended to promote sustainable and inclusive development, indigenous innovation, institutional advancement and social harmony. The 11th Five-Year Guideline period witnessed great economic and social achievements and the accomplishment of nearly all goals, among which 15 out of the 22 major targets such as in GDP and GDP per capita were fulfilled either beyond original plans or ahead of schedule. For all those achievements, the 11th Five-Year Guideline period also highlighted a number of problems in social and economic arenas, which, if not addressed positively, will pose great challenges to the realization of the goals of next five years.

Challenge I: Rapid Economic Growth with Seriously Imbalanced Economic Structure

With an average growth rate of 10.5% between 2006 and 2010 (much higher than the original target of 7.5%), China’s economy is like an express train that may well run into a halt or even derail for loss of control under ill-management. Such anxiety is intensified by the imbalanced economic structure: on the supply end, the development of the three major industries lacks coordination, with rather poor agricultural foundation, large-scale yet weak manufacturing industry and lagging service industry. On the demand end, as economic growth is driven mainly by investment, domestic consumption has long remained low. Meanwhile, economic and social development in rural and urban areas as well as in different regions is quite imbalanced, leading up to increasingly severe social troubles, esp. in those less developed areas.

Challenge II: Inequitable Distribution of an Ever-bigger Cake

While China maintains its quick steps on the path of becoming a middle-income country with its GDP per capita in 2010 reaching little below 4,000 USD, distribution of national income has been growingly unequal. By UN standards, over 100 million Chinese are still living under the poverty line. The distribution structure among the government, enterprises and citizens has been increasingly imbalanced in recent years, with a growth rate of pay for labor considerably lower than that of GDP and bigger gaps of income between urban and rural areas as well as among different regions and industries. If such trends cannot be reversed in the next five years, China may face the danger of falling into the “middle-income trap.” Therefore, it is of vital importance for China to adjust its distribution structure by drawing on the experience of other countries. To be more specific, the 12th Five-Year Guideline should make it a priority to upgrade people’s income, bridge the gap between the rich and poor and promote common prosperity of the society.

Challenge III: Enormous Manufacturing Industry with Low International Competitiveness

The 11th Five-Year Guideline period boasted the rise of tremendous manufacturing capacity, with the production of major industrial products ranking among the first of the world. For example, of the 22 categories listed in “the International Codes for Industries,” China’s production ranks first in 7 categories and third in the other 22. The scale of China’s high-tech manufacture ranked second in the world in 2008, and China has already become the leading producer of computers, mobile phones, antibiotics and vaccines, etc. However, due to the low competitiveness of many industrial products and the lack of innovative ability, China has yet to strive to become a strong industrial power. At present, China’s manufacturing industry still depends very much on other countries for technology, and it more or less remains at the low end of the value chain in the international industrial structure. Not only are profit and capital return rates diminishing year after year, but the quality of Chinese manufacturing products is also lagging behind those of developed countries for lack of innovation.

Challenge IV: People’s Livelihood Greatly Improved with Slow Development of Public Services

During the past five years, the Central Government of China made a lot of achievements in improving people’s living standards: the hard targets of expanding the coverage of Urban Basic Pension Insurance and New-type Rural Cooperative Medical System were both reached; the expected targets of average span of education, per capita disposable income of urban residents and per capita net income of rural residents were achieved as early as in 2008 as a result of reinforcing nine-year compulsory education as well as the development of higher education.
Despite the rapid economic growth, China’s input into social security and basic public services remained low, thus difficult to meet people’s needs. For example, in 2008, China’s expenditure on health accounted for 4.4% of the total public finance expenditure while expenditure on social security and employment promotion constituted 10.9%—only 15.3% bound together and 16.1 percentage points lower than the average of 31.4% among all countries with a GDP per capita between 3,000 and 6,000 USD.

Challenge V: High Urbanization Rate with Growing Urban-Rural Gaps

With a yearly growth of about 1 percentage point, China’s urbanization rate reached 45.7% in 2008, and the total urban population amounted to 607 million. Meanwhile, more problems kept arising in rural areas including severe loss of high-quality arable land, aging agricultural labor, increasing number of children left at home by their parents and bigger income gap between urban and rural areas. Besides, although hundreds of millions of rural population found their jobs in cities during rapid urbanization, yet most of them found it difficult to merge into the cities. With a large migrant population seeking their homes in the urban-rural fringes, the discrimination against them and various mass conflicts pose growing social problems.

Challenge VI: Great Achievements in Energy Saving and Emission Reduction with Slow Progress in Improving the Ecological Environment

The 11th Five-Year Guideline set energy saving and environmental protection as a hard target and a major criterion for evaluating the performance of local governments. By eliminating backward production capacity and promoting energy-saving and emission-reducing technologies, China has managed to cut down the emission of two major pollutants, and the target of reducing 20% of energy consumption per unit GDP was reached as well.
However, the shortage of energy and other resources, together with the poor ecological environment, keeps hindering further economic development. The manufacturing industry alone consumes 70% of China’s total energy consumption, and China relies more and more (over 50%) on other countries in petroleum, iron ore, bauxite and copper. Greater efforts must be taken to reach the hard target of reducing 40 to 45% of carbon emission per unit GDP in 2005 by the year 2020.

Challenge VII: Optimized Market Economy with Daunting Problems for Further Reform

Although the reform of the administrative management system was set as a key target in the 11th Five-Year Guideline and has proceeded with many achievements, few substantial breakthroughs have been made, resulting in a lack of price-making mechanism of resource products, inadequate strategic adjustment of state-owned economy and slow reform of monopoly industries. Moreover, the government still interferes much into micro economic activities while improving quite slowly as a provider of public services and performer of other social management functions.
Therefore, during the 12th Five-Year Plan period, more work must be done to promote the transformation of development mode and the reform of income-distribution mechanism so as to establish efficient and equitable institutions for sustainable growth as well as the coordinated development of both urban and rural areas. It is safe to say that the biggest challenge for reform in the 12th Five-Year Plan period lies in the readjustment of diverse powers and interests, the key of which is the reform of the government itself.

Challenge VIII: Hard Power Increased with Rather Weak Soft Power

The difference between economic development and economic growth lies in that, other than such “hard targets” as in economy and technology, the former also covers those “soft targets” like people’s living standard, population quality, education level, social security level and ecological environment, etc. During the 11th Five-Year Plan period, China managed to become the second largest economy of the world and upgrade many aspects of its hard power, but its inadequate soft power remains a huge hindrance to the improvement of overall economic efficiency and further social progress. Thus, the key to the transformation of traditional development modes is to achieve more “soft targets” in the all-round development of the society.

Cao Li is Professor of Party School of Central Committee, Communist Party of China

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