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Sylwia Malon: The outcome of the Chinese strategic 5-year planning

In March 2011 the Chinese government announced its 12th 5-year plan for the P.R. of China.

The Chinese 5-year plan requires special attention by the rest of the world. It is applied over a time in which we have to consider plenty of other variables and side effects. In March 2012 the leadership of the Chinese government will change. China at present has to fight with a restrictive monetary policy causing high inflation and socio-economic unrest. Last month the reported inflation rate reached the levels below the 5% benchmark and the real estate prices decreased for the first time in years. That is surely a great achievement for the Chinese politicians, but the Chinese government itself does not really feel safe with these short-term speculative achievements. Last week I read in “China Daily”, the government controlled English newspaper in China, that the government will not stop fighting the rising house prices. Li Keqiang stated that his government will do everything it can to prevent a real estate bubble, that is in fact on the brink of explosion, a fact emphasized by the non-government controlled press. Despite the housing oriented efforts the restrictive monetary policy is showing some negative effects. Small and medium size enterprises are heavily struggling with the actual situation and lack of lending facilities, despite the recent changes in banking reserves policies. It is necessary for the Chinese government to loosen its restrictive monetary policy, and not destroy some important elements of the economy such as the vital SME sector that contributes much more to the economy than big enterprises, yet is still hugely overlooked. In this complex fiscal environment we have to analyze the last 5-year plan in China.

Table below compares the targets of the 11th 5-year plan with the actual achievements and compares them to the targets of the 12th 5-year plan.

 

The GDP growth in the last 5 years exceeded the estimates laid down by the 5-year plan, however in the next 5 years China is trying to slow down in order not to destabilize the system. With the Kyoto protocol failing to meet its targets and Durban talks yielding no results, China is trying to aggressively cut its energy use and reduce the CO2 output. For the first time they are also targeting to build 36 million homes for the nations poorest. This is an indication that China looks much more carefully at the social problems that are mainly caused by the strong GDP growth and growing disparity between people. Digging deeper into the 5-year plan, we can even identify the growth areas of the Chinese industry.

 

Domestic consumption is expected to be main growth engine. This area also has the advantage of showing the highest levels of market openness. This opens a few possibilities to participate in the Chinese market. The new strategic industries will be developed with the help of the government, which in turn will give opportunities for foreigners to work together with Chinese partners. The Chinese will be strongly interested, to build up their own knowledge in the indicated areas and WOFEs (Wholly Owned Foreign Enterprise) will have difficulties to be established in China.

The strategy to develop the energy production in parallel to renewable energies and to focus on energy savings can be considered one of the smartest moves by the Chinese government. The western countries, countries that are still struggling with stepping out of their comfort zone and defining their sustainable development strategies, should implement such a clear strategy. In the 12th 5-year plan China defines clear targets for energy conservation and for environmental quality. It all sounds good until we realized that actually even in 2020 63% of the Chinese energy will be produced by burning coal. That is still a big share. However the Chinese realize that and are working on reducing their dependence on fossil fuels and are increasing investment in hydropower, wind, solar and biomass.

 

Summarizing the main outcomes of the 12th Chinese 5-year plan

China is inclined to slow down over the next 5 years and reduce growth as compared to the last decade. This slowdown however is still set at a 7% GDP growth. Reducing dependency on fossil fuels, switch to greener means of energy production and energy consumption reduction are key points for China over the next 5 years. For the first time the Chinese government is openly putting emphasis on the social aspects of their republic. Clearly defined minimum wages for different regions and plans to build 36 million sets of houses for the low-income families. We can expect that with the new leadership coming in place in March 2012, the social aspects will be developed even further. Nevertheless, China will not stop to close the economic/social/technical/trade gaps to the developed countries. All in all: the next 5-year plan gives confidence and accountability in the sustainable development of China.

Author: Sylwia Malon

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Sylwia Malon: The outcome of the Chinese strategic 5-year planning Reviewed by on 11 grudnia 2011 .

In March 2011 the Chinese government announced its 12th 5-year plan for the P.R. of China. The Chinese 5-year plan requires special attention by the rest of the world. It is applied over a time in which we have to consider plenty of other variables and side effects. In March 2012 the leadership of the

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komentarzy 5

  • Thanks for the article. I have a question abt „Urbanisation ratio” as percentage of people living in urban areas”. Does this number (47.5 % as for 2006-2010) include people living in rural areas being parts of large municipalities (like Beijing, Shanghai or Chongqing)?

    • Avatar Sylwia Malon-Schulze

      The urbanization ratio includes also the suburban of the big cities. However, on the scale of the Chines population this mistake will
      be not more than 2 %.

      • Avatar Zyggi

        I see. Thank You for the explanation.

  • @ Sylwia Malon

    First, thank you for presenting China’s newest 5-year plan and your comments concerning this plan.
    I have one small question concerning the following sentence:
    „China at present has to fight with a restrictive monetary policy causing high inflation…”

    Does this mean that using/implementing restrictive monetary policy causes high inflation?

    I might be mistaken but restrictive monetary policy raises interest rates. Less money on the market would more likely lower inflation.

    • Contrary to our home-grown experience of increasing interest rates to „cool-down” the economy, China used different (and in my view more reasonable) approach to reduce money supply and increased fractional reserve requirements.
      It proved more effective, as on one hand corporates do not face increased financing costs (so lower bankruptcy and stable non-performing loan book), and the banking system is strengthened at the same time.

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