China Sets New Economic Goals

2007-10-29
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Chinese President Hu Jintao has outlined an ambitious economic agenda for China, but success will depend on the government’s will to pursue major reforms, analysts say.

Speaking at the 17th Communist Party Congress on Oct. 15, Hu vowed that China will expand the country’s per capita gross domestic product (GDP) fourfold by 2020, while also saving resources.

Per capita GDP more than doubled from $800 in 2000 to U.S. $2,042 last year, according to figures cited by China’s official Xinhua news service, and Hu’s goal suggests there are no plans to back away from China’s string of rapid increases.

There are two problems. Problem number one is policy coordination, because they know that just because they have a good policy doesn’t mean that they can have effective policy implementation. And problem number two is how they’re going to overcome resistance from the local governments.

In 2005, Premier Wen Jiabao set a slower-growth target of 8 percent amid concerns about economic overheating, but that limit was soon dropped in light of China’s investment boom. GDP growth jumped to 11.1 percent in 2006.

Last year, the government said it would curb major industries—including steel, coal, cement, and aluminum—that have been credited with much of China’s growth but also blamed for over-investment, energy waste, and pollution.

Hu made few specific references to these problems, though he said that China’s growth had come “at an excessively high cost of resources and the environment.”

Target ‘achievable’

In an interview with Radio Free Asia, David Bachman—a China expert and political science professor at the University of Washington’s Jackson School of International Studies in Seattle—said Hu’s 2020 growth target looks achievable in economic terms.

“Barring exceptional circumstance, I think it’s within the realm of possibility,” Bachman said. But he added it remains to be seen if environmental improvements can be made at the same time.

“Environmental enforcement now is not great, to put it mildly,” Bachman said. “They could do a lot, and it would have close to zero effect.”

As an example, Bachman cited Lake Taihu, a lake to the west of Shanghai that has become clogged with toxic algae and polluted with factory waste. Bachman said that pollution problems have reached similarly serious proportions in many parts of China.

“You’ve reached levels of pollution that are so severe that simply slowing or improving the quality of effluents that are emitted is not going to have much overall effect… particularly if we project growing consumption, more automobiles and, among other things, more energy use.”

But Bachman added that China’s government may be able to show improvements in energy efficiency and resource use because the current rate of waste is so high.

“[China uses] energy per unit of GDP much more inefficiently than do any other countries, and there’s a lot of potential there for much more efficient energy use,” he said.

Concerns for stability

Jing Huang, a senior fellow in foreign policy studies at the Washington-based Brookings Institution, said that to meet Hu’s goals the government will have to both engineer a “soft landing” for China’s surging economy and stem rising inflation, which has been driven by the economy’s overheated sectors.

Huang said that officials can now either allow the country’s currency to strengthen, as the United States has urged, or raise interest rates in an attempt to tighten the monetary supply and attract funds away from the overheated stock market and real estate sectors.

The government appears to be headed for the second choice, Huang said.

“From what has been done in the past few months and from what Hu Jintao said in the party congress, my view is that they’re going to increase the interest rates rather than adjust the exchange rate.”

The decision will be driven by concerns for maintaining political stability and controlling China’s investment-led growth, Huang said. But he noted that previous efforts to rein in construction and real estate investment have proved ineffective.

“There are two problems. Problem number one is policy coordination, because they know that just because they have a good policy doesn’t mean that they can have effective policy implementation,” Huang said.

‘Bad economic structure’

“And problem number two is how they’re going to overcome resistance from the local governments.”

Huang said that Hu’s speech marks the government’s recognition of the seriousness of China’s problems.

“Chinese leaders realize that the environment is getting worse and worse. Energy security is no longer there—actually it’s energy insecurity—and also [there are] the expanding disparities across China and the enlarging regional gaps between the hinterlands and the coastal areas,” Huang said.

“And now it seems to me that in Hu Jintao’s speech you can say that the essential cause for all these problems is a bad economic structure which needs to be readjusted quickly and effectively.”

Original reporting by Michael Lelyveld. Edited for the Web by Richard Finney and produced by Sarah Jackson-Han.

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