Beijing ponders new expansion
formula By Antoaneta Bezlova
BEIJING - Chinese leaders are seeking a
new formula for expansion of the world's
fastest-growing economy that addresses the costs
of growth such as environmental damage and a
widening income gap. They want to switch to a more
sustainable mode of development where China
consumes and pollutes less.
But they face
a quandary. While aware that China's current model
of development, driven by investment and exports,
is unsustainable, they fear that recalibrating the
economy could result in greater unemployment and
political instability. As investment growth slows,
the adverse social effects might imperil
the
political legitimacy of the ruling Chinese
Communist Party, which took power 58 years ago
promising to deliver growth and rising prosperity.
In a nationally televised speech, which
opened the annual session of the National People's
Congress in Beijing on Monday, Premier Wen Jiabao
said China is not going to abandon the
export-driven growth that has helped it become the
world's fourth-largest economy.
"Promoting
economic development and increasing employment
through the expansion of foreign trade is a policy
that we shall pursue for a long time to come," Wen
said.
The remarks came two days before US
Treasury Secretary Henry Paulson was scheduled to
arrive in Beijing, bringing a warning that the
Bush administration is dissatisfied with China's
huge bilateral trade surplus and undervalued
currency.
In recent years China's growth
has relied increasingly on exports, which has made
it vulnerable to a global slowdown in demand,
while increasing the risk of a protectionist
backlash in the US and other countries. The export
boom has pushed foreign-exchange reserves to US$1
trillion and created tension with trading
partners. China's products are cheap because
the yuan is kept artificially low, US and European
manufacturers and lawmakers allege. Last week,
Paulson warned about "a worrisome trend" on
Capitol Hill toward acceptance of the idea of
erecting barriers to trade to try and slow a flood
of cheap imports from China.
Chinese
leaders are aware that the current growth led by
investment and exports is creating numerous
problems, both internationally and domestically.
At home, the model hurts because it is occurring
at the expense of private consumption. Abroad, it
is being blamed for creating trade tensions and
exporting pollution.
"We need to adjust
the balance between investment and consumption,"
Wen said in his work report delivered at the Great
Hall of the People in Beijing.
As
consumption is the main way to improve living
standards, experts say China's reliance on exports
or investment is holding back prosperity.
This is particularly evident in the
countryside, home to 800 million people, or more
than 60% of the Chinese population. The average
disposable income of farmers in 2006 was 3,587
yuan ($463), less than a third of that available
to people in towns and cities, according to
government statistics.
The government has
promised to spend more to raise lagging incomes in
the countryside. It has also initiated a "rural
reconstruction" drive, aimed at building more
infrastructure in the villages and channeling more
state funds towards basic healthcare and
education.
Wen confirmed that Beijing
continues to see boosting domestic consumption as
a potential source of economic growth. "We will
take a variety of measures to increase the income
of both urban and rural residents, especially low-
and middle-income [people]," the premier said. "We
must adhere to the principle of boosting domestic
demand, focusing on expanding consumer demand."
In the long term the government wants to
provide incentives for people to spend more and
save less by boosting such social programs as
pensions, health care and education.
Experts warn, however, that this will take
a long time and will require a huge increase in
government spending before any meaningful progress
is made on boosting rural consumption.
"At
present, the rural reconstruction drive is geared
more towards reducing the trouble that China is
causing abroad by buying too much and exporting
too much," said Wen Tiejun, a senior rural expert
at the Renmin University in Beijing.
China's rapid economic growth is indeed
having international repercussions. It is one of
the reasons international oil and other commodity
prices have risen so quickly in the past two
years. Meanwhile, the booming trade surplus, which
hit $180 billion in 2006, is aggravating tensions
with China's trade partners.
Creating and
exporting pollution is another side-effect of the
country's strong economic performance. As the
world's largest producer and consumer of coal,
China is also the largest emitter of sulfur
dioxide; its emissions of this gas have been
blamed for acid rain in Japan and South Korea.
Cross-border sandstorms resulting from
over-exploitation of land and desertification are
also a problem for countries neighboring China.
And there are growing fears about toxic emissions
from China blowing across the Pacific Ocean to the
west coast of North America.
On Monday,
Premier Wen detailed plans to shut down "backward"
steel and iron foundries and inefficient,
polluting power plants. He said development
projects will have to meet national environmental
standards and vowed that China must "bring
pollution under control".
"We must make
conserving energy, decreasing energy consumption,
protecting the environment and using land
intensively the breakthrough point and main
fulcrum for changing the pattern of economic
growth," Wen told the 3,000 legislators.
Wen's vow came even as he admitted that
China in 2006 failed to meet the government's goal
of cutting the amount of energy used to generate
each unit of gross domestic product (GDP) by 4%,
the first stage of a bigger, five-year plan to
reduce energy consumption by 20%.
The
premier set a government target of 8% economic
growth for 2007, the same as last year, but
acknowledged the difficulty of capping China's
runaway economy. Last year, China's GDP actually
rose 10.7%.
Even as it seeks to moderate
growth and curb excessive investment, the Chinese
leadership will want economic growth to remain
strong to ensure political stability in the run-up
to the Beijing Summer Olympic Games, scheduled for
August 2008.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
