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Workers labor on a house under construction at the Sino-Singapore Tianjin Eco-city in Tianjin, China, on Wednesday, March 13, 2013. China's money-market rate rose to a one-week high after central bank Governor Zhou Xiaochuan said yesterday the nation should be on "high alert" over inflation. Photographer: Tomohiro Ohsumi/Bloomberg *** Local Caption *** 1184026.jpg
Workers labor on a house under construction at the Sino-Singapore Tianjin Eco-city in Tianjin, China, on Wednesday, March 13, 2013. China's money-market rate rose to a one-week high after central bank Governor Zhou Xiaochuan said yesterday the nation should be on 'high alert' over inflation. Photographer: Tomohiro Ohsumi/Bloomberg *** Local Caption *** 1184026.jpg

New China aims to spread the love

The Asian powerhouse is set to continue to grow but the country's incoming leaders say they will commit to the betterment of the people and tackle a wealth divide.

China is switching away from a single-minded focus on economic growth at all costs.

Instead, the world's second-biggest economy is putting the country's fast-growing consumer class at centre-stage to spread the fruits of economic growth more evenly in this country of 1.3 billion people.

That has been the central message to emerge from China's annual parliament, the National People's Congress (NPC), which is largely a formality but does give some useful insights into the future direction of the world's second biggest economy.

The China that president Hu Jintao and the premier Wen Jiabao are handing over to their successors, Xi Jinping and Li Keqiang, is much better off than when they took over 10 years ago.

However, the absence of reform in those 10 years means the new administration faces some complex issues, such as how to keep growth on track without overheating and how to maintain the Communist Party's grip on power by addressing issues such as corruption and economic inequality.

"Some of these problems have built up over time, while others have emerged in the course of economic and social development and still others have been caused by inadequacies and weaknesses in our government work," Mr Wen said in a 100-minute speech to the nearly 3,000 deputies in the Great Hall of the People, his last address before stepping down.

Mr Xi will be named president at some point towards the end of the 13-day NPC, having been named Communist Party chief and head of the military at a congress in November.

Mr Wen made consumers the cornerstone of an economic strategy designed to deliver an overall growth target of 7.5 per cent this year - a level China just beat last year when growth eased to its slowest pace in 13 years, expanding by 7.8 per cent. Mr Keqiang said yesterday the nation must maintain economic growth averaging 7.5 per cent a year through 2020, as the country seeks to double per capita income this decade.

"We need to maintain steady economic growth, prevent inflation and control latent risks so that there won't be big fluctuations in economic performance," he said.

"That will not be easy, but we have favourable conditions in place and enormous potential in domestic demand."

Mr Wen says unleashing the power of China's consumers is vital to the future of the world's second-biggest economy.

"We should unswervingly take expanding domestic demand as our long-term strategy for economic development," he told delegates assembled in the imposing Socialist Realist-style building for the once-a-year meeting.

Rebalancing growth away from the investment-driven, export-oriented model that has delivered three decades of muscular 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 priority of the administration of Mr Hu and Mr Wen during their decade at the helm.

"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."

Overall government spending will increase 10 per cent to 13.8 trillion yuan (Dh8.15tn) helped by a 50 per cent increase in the coming year's fiscal deficit. Defence spending will increase 10.7 per cent to 720 billion yuan - a slight slowdown from last year's increase of 11.2 per cent.

"For about two decades after Tiananmen in 1989, the Chinese government wanted growth just short of, or at about, the 8 per cent rate," says Steve Tsang, at the China Policy Research Institute at the University of Nottingham.

"Having achieved such a high rate of growth in the past decade, it is only natural that the expectation of the growth rate will now moderate.

"Wen's long list of achievements is something to be expected. The list of what should be done is also a reflection of what the Hu-Wen administration failed to do. They are on the list of what it wanted to do in the last decade but somehow did not manage to achieve," says Mr Tsang.

Despite its ranking as the second-largest economy globally, China remains an aspiring middle-income country marked by inequality and reliant on state-backed investment.

About 13 per cent of China's population still subsists on less than US$1.25 (Dh4.59) per day, the United Nations development programme says. Average urban disposable income is just 21,810 yuan a year.

Strategists will be watching the rest of the congress, especially the elements involving Mr Keqiang, who took office on Friday and who as premier will be in charge of the economy, to see what the new leadership plans to do to lessen the monopolies enjoyed by China's vast state-owned enterprises (SOE).

SOEs make up more than half of Chinese economic output and employment.

Of 70 Chinese firms on the Fortune Global 500 list for last year, 65 are state-owned.

European firms in China are hopeful reform is on the new administration's agenda.

"China's new leadership needs to take advantage of this opportunity to implement the reforms proposed in the 12th five-year plan. Reform has stalled in recent years - this is not sustainable and carries high risks," says Davide Cucino, the president of the European Chamber of Commerce in China.

"China's transition to an innovative, consumption-driven economy will not be easy and bold decisions will have to be made to achieve those targets identified."

The UBS economist Wang Tao wrote in a research paper the reforms and policies outlined at the NPC did not suggest a radical policy shift.

"We think the 7.5 per cent GDP growth target is easily achievable, with the help of a larger budget deficit and still supportive monetary and credit policies. Relative to the intended neutral policy stance, the current credit condition seems too loose and face some tightening down the road," she says.

UBS expects growth momentum to be sustained at a fast pace or even pick up further in the next couple of quarters and sees more of an upside risk to its 8 per cent GDP growth forecast.

"As we had expected, the government plans to increase social spending, continue with energy and utility price reforms and expand the business-for-VAT tax pilot programme," Ms Wang says.

"The 3.5 per cent CPI inflation target is in line with our forecast for this year."

UBS believes avoiding a property bubble will be a policy issue.

Property price is an important social issue for the government, which has its credibility on the line.

Rapid increases in sales and prices in some cities prompted the state council to announce additional tightening measures to cool down the market.

"If prices continued to rise rapidly in the coming months, we expect the government to take additional targeted measures. Even so, we still expect property construction to grow somewhat faster than in 2012, as the government is also encouraging more supply in lower-end housing as well as housing supply in small and medium-sized cities, partly through the urbanisation drive," Ms Wang says.

To keep its vast urbanisation project on track in a "healthy and orderly way", China's new leaders say they are planning to upgrade the household registrations scheme, the dreaded "hukou" system, and replace it with more streamlined residence permits.

Only time will tell whether the bright optimism of the incoming regime translates to concrete change for the better for the Chinese people.

 

business@thenational.ae

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