03/05/2010, 00.00
CHINA
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Transform the economy, bridge the gap between rich and poor, says Wen Jiabao

by Wang Zhicheng
The economy’s planned growth rate is set at 8 per cent, inflation at 3 per cent. Real estate speculation should be reined in, domestic consumption increased. For the first time, social spending (education, health care and pensions) should grow faster than defence spending. Doubts linger over the plan’s overall feasibility because of resistance by local government.
Beijing (AsiaNews) – In a two-hour speech at the start of the annual session of the People’s National Congress, Premier Wen Jiabao outlined China’s main objectives for the year. He said the economy needed restructuring because it was too dependent on foreign exports, and that the gap between the rich and the poor had to be reduced by better redistributing the benefits of the economy.  He did not hide the fact that this would be a “crucial year,” one in which the country faced “a complicated situation.”

The premier set a target of 8 per cent growth, a level deemed necessary to maintain employment levels and social order, and a 3 per cent inflation rate.  Whilst the first is easily within reach since growth in the last quarter of 2009 was already 10.7 per cent, the latter seems more remote because the government’s 4 trillion yuan stimulus package has had a major impact on the real estate market, causing to a spending spree by property speculators. Hence, prices in the country’s major cities rose 9.5 per cent in January from the same month a year ago. To deal with the problem, the government cut new loans by 22 per cent, forced banks to reduce their lending and imposed tighter regulation on first time homebuyers as well as buyers of second or third homes.

For Wen, China’s economy is too export-oriented. Lower demand in some foreign markets has led to output overcapacity whilst the domestic market remains weak because of widespread poverty.

Restructuring the economy entails raising domestic consumption, the premier said. Slated for higher outlays were education (9 per cent), health care (8.8 per cent), social security (8.7 per cent) and low-income housing (14.8 per cent). Significantly, the increases were higher than that of the military, which is projected to receive a 7.5 per cent budget boost, its lowest in two decades.

“Everything we do, we do to ensure that the people live a happier life with more dignity and to make our society fairer and more harmonious,” Wen said as he rhetorically described the government’s decisions.

The premier also pledged greater efforts to improve the standard of living of minorities, including Tibetans and Uyghurs. However, it is clear that these choices stem from an urgent need to save the economy through greater domestic consumption.

Plans to reform the compulsory household registration system (hukuo) for migrants (See Wang Zhicheng, “Common editorial to demand end to forced residence (hukou),” in AsiaNews, 2 March 2010) will be part of the restructuring process.

Wen did not explain how the system would be changed, but it is not likely to include allowing people to choose where to live. Any reform to residency rules will in all likelihood be limited to small cities, excluding large metropolitan regions like Beijing, Shanghai or Guangzhou, where cheap labour without residency rights is needed.

According to Harvard economist Kenneth Rogoff, growth could slide to 2 percent from Wen’s 8 per cent target within a decade if its debt-fuelled real estate bubble collapses. To avoid this, local authorities must follow rules set by the central government but this is hard to do because it would mean reducing their revenues (from taxes and kickbacks).

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