By Kevin Yao and Aileen Wang
BEIJING, March 5 (Reuters) – China put its fast-growing
consumer class at centre-stage as outgoing Premier Wen Jiabao
set out a reform plan on Tuesday to spread the fruits of
economic growth more evenly in the country of 1.3 billion.
Wen said unleashing the power of China’s consumers was vital
to the future of the world’s second biggest economy and called
for accelerated reform of the rigid hukou household registration
system to drive an urbanisation effort that he said underpinned
the country’s programme of economic development.
“We should unswervingly take expanding domestic demand as
our long-term strategy for economic development,” Wen told
delegates assembled in the Great Hall of the People for the
once-a-year meeting of China’s National People’s Congress (NPC).
“To expand individual consumption, we should enhance
people’s ability to consume, keep their consumption expectations
stable, boost their desire to consume, improve their consumption
environment and make economic growth more consumption-driven.”
Wen made consumers the cornerstone of an economic strategy
designed to deliver an overall growth target of 7.5 percent in
2013 – a level China barely beat in 2012 when growth eased to
its slowest pace in 13 years, expanding by 7.8 percent.
Rebalancing growth away from the investment-driven,
export-oriented model that has delivered three decades of double
digit growth, lifted hundreds of millions of people from rural
poverty and turned China into the world’s biggest trading
economy, has been a policy priority for much of Wen’s decade in
office.
There are growing concerns that more fixed-asset investment
– already worth about 50 percent of GDP and at a level that
worries the International Monetary Fund – would simply add to
the inefficiency of China’s state sector.
Inefficiency in industry exacerbates China’s horrific
pollution problem, which has its origins in its factory-fuelled
expansion.
POLLUTION PROBLEMS
The massive environmental cost of China’s development was
acknowledged repeatedly by Wen.
“The state of the ecological environment affects the level
of people’s well-being and also posterity and the future of our
nation,” Wen said.
“We should adhere to the basic state policy of conserving
resources and protecting the environment and endeavour to
promote green, circular and low-carbon development,” he said.
There has been widespread public anger and rare media
criticism over pollution in China after choking smog enveloped
large swathes of the north of the country recently, grounding
flights, forcing people indoors and forcing emergency measures
such as factory closures.
Pollution in Beijing regularly exceeds 500 on an index that
measures particulate matter in the air with a diameter of 2.5
micrometers. Above 300 is considered hazardous, while the World
Health Organisation recommends a daily level of no more than 20.
Wen linked the successful delivery of policies on consumers,
food safety, pollution, healthcare, education, corruption and
financial reform to the Communist Party’s right to rule.
“We need to improve the socialist market economy,” Wen said.
“Reform and opening up are the fundamental force that drives
China’s development and progress. We can continue to advance our
cause only by adhering to reform and opening up,” he added.
China has a long way to go.
It needs about 40 trillion yuan ($6.4 trillion) to pay for a
10-year urbanisation plan the party hopes will close the chasm
between the country’s urban rich and rural poor.
Beijing aims to bring 400 million people to cities as the
new leadership of president-in-waiting Xi Jinping and
premier-designate Li Keqiang seek to turn China into a wealthy
world power with economic growth generated by affluent
consumers.
Xi and Li are set to take up their government posts by the
end of the parliament session, which is scheduled to conclude on
March 17.
INCOME GAP
Despite its ranking as the second-largest economy globally
after three decades of stellar growth, China remains an aspiring
middle-income country riven with inequality and dependent on
state-backed investment.
About 13 percent of China’s population still live on less
than $1.25 per day, the United Nations Development Programme
says. Average urban disposable income is just 21,810 yuan
($3,500) a year.
According to the latest reckoning by Forbes, China has 122
dollar billionaires. A rival list in the Hurun Report says China
has 317 billionaires – a fifth of the total number in the world.
Urbanisation could cure China’s economic imbalances, a study
by consultants at McKinsey showed last November, putting it on a
path to domestic consumption-led growth within five years to
replace three decades of investment and export-driven
development that stoked global trade tensions.
The government hopes 60 percent of China’s population will
be urban residents by 2020, from about half now, and will build
homes, roads, hospitals and schools for them.
In January, the State Council, or cabinet, issued a new
fiscal framework to make rich individuals and state corporations
contribute more to government coffers and strengthen a social
security net for those at the bottom.
But tackling China’s wealth gap will need more than just
taxes. Analysts say state-owned enterprises will have to be
privatised and the hukou system will have to be dismantled.
Wen said China should accelerate reform of the household
registration system, register eligible rural workers as
permanent urban residents, expand coverage of basic public
services to all permanent urban residents and create an
equitable environment for the free movement of people.
The lack of access to basic public services suffered by
China’s roughly 158 million migrant workers is cited by
economists as a key restraint on domestic consumption growth.
Migrant workers are paid less than their urban counterparts
and save harder to cover potential health and education costs.
But while Wen was heavy on promises to change China’s
economic model, there was a ring of familiarity to much of his
speech and the spending priorities laid out in separate
documents issued by the Ministry of Finance and the powerful
National Development and Reform Commission (NDRC), the country’s
top economic planning agency.
INCREASED SPENDING
In a broad series of increased commitments, the Ministry of
Finance said China would boost fiscal spending in 2013, raising
the fiscal deficit target to 2 percent of gross domestic product
from 1.6 percent of GDP in 2012.
A rush of approvals worth some $150 billion for key
infrastructure projects in the second half of 2012 helped
cushion last year’s economic slowdown.
Railway spending has been key to that boost and the NDRC
said it would put into operation 5,200 km (3,225 miles) of new
railway lines this year.
In a separate document, the Ministry of Finance said it was
raising the quota for bonds issued by local governments to 350
billion yuan in 2013, compared with 250 billion yuan in 2012.
It also pledged to further strengthen regulation of local
government debt and curb irregular financing activities.
China’s local governments have been dogged by debt worries
since racking up 10.7 trillion yuan of loans by the end of 2010.
They borrowed heavily to finance their contributions to
infrastructure spending laid out in a 2008 stimulus programme
launched by Beijing in the face of the global financial crisis.
China said it would raise military spending by 10.7 percent
to 740.6 billion yuan, building on a nearly unbroken series of
double-digit rises in the defence budget over two decades.
The government also announced that the domestic security
budget would rise 8.7 percent to 769.1 billion yuan, the third
year in a row it will outstrip defence spending.
