China’s economy is growing more slowly than in the recent past. This year’s growth target is between 6.5% and 7%, whereas the economy grew by 6.9% last year. The fact that exports dropped 25% in February is a sign of the direction China is taking. The 13th Five-Year Plan, a draft of which was published over the weekend and put forward by Chinese Prime Minister Li Keqiang for approval by the 3,000 delegates of the National People’s Congress, is already taking shape. It will be difficult to fight poverty and create jobs as was planned and to ensure that the social gap does not widen even further among the 1.3-billion strong population.
On the other hand, the problems are not so great that only yet another huge economic program would help. The government wants to introduce substantial reforms. This will be more painful and painstaking but it will have a more long lasting effect than simply printing money. State-owned companies will have to dismiss millions of employees. The coal mining sector, the steel industry and cement factories are on the list. Last year, China produced about 60% of all cement worldwide. However, while in 2008 the construction industry did well because it had received a stimulus package worth $585bn, last year some 40% of cement producers suffered losses.
Fewer subsidies for ailing companies
The idea is to no longer pamper such companies. The government wants to stimulate growth through innovation and consumption. The latter is already responsible for two-thirds of China’s growth so when exports sink this affects only a third of the economy. Agriculture is also growing. The meetings that Prime Minister Li is conducting with delegates from the Chinese provinces during the National People’s Congress also give a clear indication of the direction China is taking.
On Sunday, he spoke with lawyers from the eastern province of Shandong, which saw 8% growth in 2015. Alongside Guangdong and Jiangsu, it is one of the strongest provinces in economic terms. On Monday, Li spoke with delegates from the southeastern province of Fujian from which he originates. Despite its recent industrialisation, the province is growing rapidly due to its focus on hi-tech. In 2015, it enjoyed 9% growth – 2% over the national average.
In 1980, Fujian was still one of the poorest provinces in China. Thanks to its innovation but also its environmental policy, it has become an example of what Beijing would like to develop in the whole country. With over 38 million inhabitants, the province also has the largest area of forest in the whole country which Beijing wants to increase from 18% to 23% of the province. China’s environmental goals include restricting energy consumption, improving the quality of water and ensuring that the air is clean. In future, the government wants to ensure that cities enjoy smog-free days 80% of the time.
The Communist Party is not to be envied. Even if some provinces are already close to meeting the goals of the new Five-Year Plan, the conservatives in the government are more inclined to continue pampering the ailing state-owned companies so as to maintain social stability. That’s also what the delegates in the affected provinces want and they will do their best to prevent massive job cuts. Even if they are not elected by the people, they always try to get the best for their provinces rather than simply approving all of Beijing’s plans. The delegates from the more progressive coastal regions whose profits have been subsidising the ailing state-owned companies will do their best to counter any resistance to the new plan. This is a system of checks and balances that should not be underestimated.
Frank Sieren has lived in Beijing for over 20 years.