China in Transition

The 11th Five-Year Plan as a Steppingstone to Realizing an "All-round well-off society"

Chi Hung KWAN
Consulting Fellow, RIETI

Construction of a "harmonious society" based on the "scientific outlook of development"

In its fifth plenary session convened in October, the 16th Central Committee of the Communist Party of China (CPC) approved a proposal for the formulation of the 11th Five-Year Plan for National Economy and Social Development. The proposal has laid down action guidelines for the next five years toward realizing a "all-round well-off society" by 2020, a goal set forth at the 16th National Congress of the CPC (table). Amongst all, the construction of a "harmonious society" based on the "scientific outlook of development" is an issue of paramount importance for the government of Hu Jintao and Wen Jiabao.

This scientific outlook of development is a thinking that seeks human-oriented, balanced and all-dimensional sustainable development. Specifically, it consists of five harmonization initiatives: (1) harmonization in the development of urban and rural areas (greater priority to the development of rural areas and solving of problems concerning farmers), (2) harmonization in regional development (greater assistance to less developed areas), (3) harmonization between economic and social development (expansion of employment opportunities and enhancement of social security and public services such as medical care and education), (4) harmonization between economic development and the human and natural environment (greater emphasis on resource preservation and the protection of the natural environment), and (5) harmonization between domestic development and the opening-up policy (acceleration of domestic market growth while keeping to the opening-up policy).

From "getting rich first" to "common prosperity"

The 11th five-year plan aims to shift China's economic and social policy from prioritizing "getting rich first" to stressing "common prosperity," highlighting the need to create a "harmonious society." The policy of getting rich first is based on a theory proposed by Deng Xiaoping, the late leader and reform architect of China; that the whole country will eventually become rich by letting some people and regions prosper first. The idea defied the principle of absolute equality under the regime of Mao Zedong and aroused people's desire to work and get rich. This has served as a driving force behind China's rapid economic growth beginning in the 1980s, but also resulted in widening disparities between rich and poor. In a bid to deliver the fruits of economic development to the whole country, the proposal calls for the establishment of a social safety net -- social security and medial care systems, insurance schemes for unemployment and labor accidents, and so forth -- in addition to creating jobs, narrowing regional disparities, and solving the so-called "three agriculture-related problems," namely, the problems of agriculture, peasants and rural villages. In particular, the proposal calls for expanding fiscal expenditures for the purpose of enhancing public goods and services, particularly on infrastructure development and education, in order to modernize the rural villages.

Stabilizing the economy and sustaining high growth

Along with the pursuit of common prosperity, the sustaining of high growth is highlighted as another key goal in the proposal. China is seeking to double, by 2010, the per capita GDP from the level in 2000. Assuming that the GDP is measured in real terms, i.e. net of inflation, China's per capita GDP must increase by an annual rate of 7.2% to achieve that goal. If the population increase -- 0.7% per annum -- is taken into account, the target growth rate of the economy needs to be around 8%. This represents an upward revision from the existing target of quadrupling the GDP in 20 years through 2020 (meaning annual real economic growth of 7.2%). Given that China posted an average annual growth rate of 8.8% from 2001-2004 and is certain to achieve the 9% level for this year, the upwardly revised growth goal is comfortably attainable even if the Chinese economy in the next five years grows only at 7.2% as initially perceived.

From "extensive" to "intensive" growth

To sustain high growth, China needs to shift from conventional "extensive" growth based on the expansion of inputs to "intensive" growth brought about by increases in productivity. This is particularly important because China accounts for 22% of the world's population. Should the country seek economic growth solely by increasing inputs, it would have to compete with other countries to secure limited resources. Consequently, the prices of primary products would rise sharply and this might result in undermining China's international competitiveness. In fact, a shift from extensive to intensive growth was included among the goals in the 9th and 10th five-year plans. As it turned out, however, no significant results have been accomplished to date. The five-year plan, adopted this time around, lists energy and environmental challenges among issues of priority. The plan, in tune with the scientific outlook of development, urges China to achieve this end by improving its capabilities to develop its own technologies and promoting a recycling economy. Notably, it includes an explicit target for reducing energy consumption per unit GDP, namely some 20% in the five-year plan period.

Changing government roles into those suitable to the market economy

Achieving the goals set forth under the new five-year plan will take more than just the will of the government. It is essential to create a mechanism for promoting equity and growth by deepening reform. Particularly, as the transition to a market economy proceeds, the Chinese government is facing the need to change its roles. Specifically, the government must reinforce the provision of public goods and services (including strengthening of market discipline and the protection of ownership rights in addition to health care and education), ensure macroeconomic stability, and enhance social security and other means of income redistribution, while refraining from excessive interventions in the market, a practice that has been a hotbed of corruption. In the new five-year plan, the Chinese word for "plan" is changed from jihua, as in jihua jingji (planned economy), to guihua (guidelines) for the first time in more than 50 years. This is also in line with the ongoing change of government roles into those that better meet the needs of the market economy.

Table: Major Goals of the 11th Five-Year Plan

<What are the five-year plans?>
In 1953, China began the implementation of five-year plans. The latest one covering 2006-2010 is the 11th plan. In past five-year plans, the government controlled the distribution of resources and issued detailed directives concerning product items and their respective production volumes. Amid the progress of the transition to a market economy, the government for the first time has used "guihua" - instead of "jihua"-- as the Chinese word meaning a "plan." Coinciding with this, the government has also substantially reduced the number of numerical targets, and shifted the emphasis to a macro strategy for economic and social development.

October 24, 2005

October 24, 2005