Thursday, March 17, 2011

12th 5-Year Plan and Government Work Report

China, as a country adopted to planned economy, is used to establishing plan for its entire country every 5-year since 1953. The latest one, which has been recently delivered on 5 March 2011 by China premier Wen Jiabao to the National People's Congress (NPC) along with his Government Work Report (also called the "Report on the Work of the Government"), is the 12th 5-Year Plan (or called "Twelve Five-Year Plan") in Chinese history and is to be effective from 2011 to 2015.

The premier's Government Work Report firstly reviews the government's work during the period of the previous 11th 5-Year Plan, and then it summarizes the national 12th 5-Year Plan as follow:

(1) Propel Economic Development: To improve quality and efficiency of economic growth, China GDP growth rate target should be lowered to +7% annually on average over the next 5 years, from the previous GDP growth target of +7.5% for the 11th 5-Year Plan. Based on the 2010 prices level, China GDP should exceed RMB 55 trillion by 2015. Continue to strengthen and improve macroeconomic control, such that the overall prices level should be kept basically stable. Unleash the huge potential of domestic consumption. Domestic consumption should expand as one of the three major shares of China GDP other than investment and exports, thus creating a more balanced economy.

(2) Speed-up Economic Restructuring: Insist the path of industrialization with Chinese characteristics. Transform and upgrade the manufacturing sector. Foster and develop strategic emerging industries in China by 2015. Accelerate the development of the service sector and raise its value-added contribution to account for 47% of China GDP, up 4% points. Urbanization rate should reach 51.5%, up 4% points. Facilitate the balanced development of primary, secondary and tertiary sectors of the Chinese economy.

(3) Education and Innovation: Steadily raise the educational level of all Chinese people and strive to build up teams with large number of high-caliber personnel. Strive to pursue major scientific and technological breakthroughs, with a target to have 3.3 patents per 10K people by 2015. Expenditure on research and development (R&D) should account for 2.2% of GDP.

(4) Conserve Resources and Protect the Environment: Actively respond to climate change, promote the use of clean energy and build up capacity for sustainable development. Non-fossil fuel should account for 11.4% of primary energy consumption. Install 40 additional gigawatts of capacity for nuclear by 2015. Energy consumption per unit of GDP should be reduced by 16%, and carbon dioxide (CO2) emissions per unit of GDP should be reduced by 17%. The release of major pollutants should be reduced by 8% to 10%. Increase forest cover by 12.5 million hectares by 2015, thus the forest coverage rate should rise to 21.66%. Forest stock should also be increased by 600 million cubic meters. Water consumption per unit of value-added industrial output should be reduced by 30%. Implement preferential tax policies in China to encourage energy conservation and emissions reductions. Cite electric vehicles as one of the strategic emerging industries.

(5) Improve People Livelihood: Improve employment by creating an extra 45 million jobs in urban areas by 2015. Registered unemployment rate in urban areas should be kept less than 5%. Strive to align the pace of resident income growth with the economic development, and to align the pace of labor wage growth with the increase in labor productivity. Make the national income distribution system more reasonable. Both the per capita disposable income of urban residents and also the per capita net income of rural residents should rise by an annual average of at least 7% in real terms. Improve the Social Security System so that the basic pension insurance and basic medical insurance systems should cover all urban and rural residents. Minimum wage standard should increase by no less than 13% on average each year. Increase the proportion of expenses for medical treatment paid out of medical insurance fund to more than 70%. Further deepen reforms of the pharmaceutical and healthcare systems. Low-income housing should be made available to around 20% of China's urban households. Construction and renovation of 36 million government-subsidized affordable flats for low-income families. Control population to be no larger than 1.39 billion. Average life expectancy of Chinese people to increase by one year. Construction of 35,000 km of high-speed rail that aims to connect every city with a population greater than 500K people.

(6) Develop Modern Agriculture: Accelerate the new socialist rural development. Annual grain production capacity should be over 540 million tones. Enlarge farmland protection, so that farmland reserves should be more than 1.818 billion mu by 2015. Improve agricultural irrigation and waterworks.

(7) Deepen Opening-up Policy: Emphasize top-level design and overall reform planning. Aggressively push the economic system reform, actively but prudently advance the political system reform. Improve socialist democracy and socialist legal system. Better social management system for greater social vitality, harmony and stability. Accelerate the reforms of the fiscal, taxation, and financial systems. Establish fiscal and taxation systems which are useful in ever-changing economic development pattern. Develop a financial system that is diverse, efficient, prudently regulated and risk-controllable. Encourage qualified enterprises to get listed in the mainland stock markets. Deepen reform in monopoly sectors for easier market entry and more competition. For setting prices of resource materials, develop a complete and flexible mechanism that should be able to reflect supply and demand market situation, environmental cost and degree of resource scarcity.

(8) Strengthen Government's Internal Reform: Improve government efficiency and credibility. Government should be responsible for the Chinese people, work to benefit them and also accept their oversight. Need system change against lacking of check and balance on excessive concentration of power. Prevent and punish corruption activities. Improve public services for both urban and rural residents. Safeguard people's democratic rights and legitimate rights. Safeguard social fairness and justice.

The national 12th 5-Year Plan also opens an independent and new chapter to support Hong Kong Special Administrative Region (HKSAR) as a Renminbi (RMB, also called CNY or Yuan) offshore clearing centre and an international wealth management centre.

In all, the China 12th 5-Year Plan attempts to address rising inequality, to rebalance Chinese economy and to make a macroeconomic environment available for more sustainable growth by increasing domestic consumption, improving social safety nets and adjusting to a more equitable wealth distribution. What is also notable in the 12th 5-Year Plan is the prominent position of both climate change and environmental issues.

We believe, like the other Chinese central government plan, the key of success for this national 12th 5-Year Plan is still whether it can be implemented effectively throughout the local governments.

In addition to the 12th 5-Year Plan, the Government Work Report also outlined its Work Plan for 2011. Since the whole report is indeed very lengthy, we will continue to go through the 2011 Government Work Plan with you in our next article.

Next article (Part II): Chinese Government Key Targets and Work Plan for 2011


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