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How China plans to revive its sluggish economy

Last updated on: November 9, 2012 08:40 IST

How China plans to revive its sluggish economy

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K J M Varma in Beijing

Chinese President Hu Jintao on Thursday promised speeding of political reforms and the creation of a new growth model to revive the country's sluggish economy and doubling the GDP by 2020, as he opened the historic Communist Party Congress that will see a change of guard at the top.

Bracing for the once-in-a-decade leadership change, Hu said the government would carry on with reform process to boost domestic demand to re-balance its economy, the world's second-largest, hit by declining exports.

"On the basis of making China's development much more balanced, coordinated and sustainable, we should double its 2010 GDP and per capita income for both urban and rural residents (by 2020)," outgoing President Hu told the 18thCongress of the ruling Communist Party which kicked off at the Great Hall of the People.

According to officials, this is the first time that per capita income has been included in the country's 2020 blueprint. Previous Congresses merely called for the growth of Gross Domestic Product (GDP), not of per capita income.

"We must continue to make both active and prudent efforts to carry out reform of the political structure and make the people's democracy more extensive, fuller in scope and sounder in practice," Hu said.

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Image: A rabbit sculpture is carried away from the Ditan temple fair after a snowfall in Beijing.
Photographs: Jason Lee/Reuters.

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The Congress was being held amid a declining growth rate of the economy which slid to 7.4 per cent from nearly about 12 per cent three years ago.

Official statistics showed that China's fiscal revenues broke the 10-trillion-yuan ($1.6 trillion) benchmark last year, registering growth of 24.8 per cent from 2010.Also in 2011, the per capita disposal income for Chinese urban dwellers rose by 14.1 per cent to $3,493.

The figure for rural residents rose by 17.9 per cent to $1125.As China's economic take-off has been largely propelled by cheap labour in past decades, Chinese workers have remained at a disadvantage in terms of income distribution pegging the domestic consumption down.

With more wealth in the treasury, the government can build up public infrastructure and improve public services, while financially capable corporations can expand their production and boost the economy, state-run Xinhua news agency quoted experts as saying.

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Image: Traffic flows on a flyover at the Bund in Shanghai.
Photographs: Reuters.

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Without naming Bo Xilai, outgoing communist party general-secretary Hu said the party "must make sure that all are equal before the law".

Hu also dwelt on the need for China to recalibrate its export and investment-led growth model after years of breakneck expansion in the economy.

Expressing concern over the growing wealth gap Hu said China must deepen income distribution reforms and increase individual incomes in step with economic development.

"We should raise the share of individual income in the distribution of national income and increase the share of work remuneration in primary distribution," Hu said.

An overall income distribution reform plan is expected to be released at the end of the year.

To realise the target, Hu said China will strive to increase contributions made through scientific and technological progress to economic growth and turn China into an innovative country. 

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Image: A man walks in Lujiazui, a financial district in Pudong, Shanghai.
Photographs: Carlos Barria/Reuters.
Tags: China , Bo Xilai

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Under the Party's blueprint, China should basically accomplish industrialisation, significantly expand IT application and markedly improve the quality of urbanistion by 2020, he said.

According to Hu, the upcoming reforms will strike a balance between efficiency and fairness in both primary and secondary distribution, with particular emphasis on fairness in secondary distribution.

China should improve the primary distribution system to allow factors of production such as labour, capital, technology and managerial expertise to have their due share of income according to their respective contributions, and China should take swift action to improve the mechanism for adjusting secondary distribution through taxation, social security and transfer payments, he said.

Reforms for the wage and salary system in enterprises, government bodies and public institutions will be deepened and collective bargaining for wages in enterprises will be promoted, Hu said.

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Image: Vehicles drive during the evening rush hour in central Shanghai.
Photographs: Aly Song/Reuters.
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He said the Party will protect income earned through work and increase proprietary individual income through multiple channels.

Hu said efforts would be made to boost the domestic demand to reduce the dependence on exports which continue to fall in the recent years due to decline in demand from EU and US markets.

"We should firmly maintain the strategic focus of boosting domestic demand, speed up the establishment of a long-term mechanism for increasing consumer demand, unleash the potential of individual consumption, increase investment at aproper pace, and expand the domestic market," he said.

In the first three quarters of this year China's retail sales grew 14.1 per cent year on year to $2.37 trillion, contributing to about 55 per cent of gross domestic product.

China should make the economy more demand-driven, promotethe sound growth of strategic emerging industries and advancedmanufacturing industries, speed up the transformation and upgrading of traditional industries, Hu said.

He also hinted about currency reforms. "We should develop a multi-level capital market, take steady steps to make interest rates and the Yuan exchange ratemore market-based and promote the Yuan's convertibility under the capital account in due course," Hu said.

Image: Vehicles past along a special Olympic lane at an airport expressway in Beijing.
Photographs: Claro Cortes/Reuters.
Tags: China , Party , EU , US

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