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November 07, 2012

China vows reforms to double GDP by 2020

China will reform to make its currency and interest rates more market-based, boost overseas investments and plough more state funds into industry as part of plans to keep GDP on track to double in size by 2020, President Hu Jintao says. This is a repeat of the target to double the 2010 GDP by 2020.

Hu also restated a commitment to targets that would double household incomes nationwide a decade, in a speech prepared for delivery at the opening of China's Communist Party Congress. Hu is due to step down as party chief during the congress.

"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 a proper pace, and expand the domestic market," Hu's speech said.

China will reform to make its currency and interest rates more market-based, boost overseas investments and plough more state funds into industry as part of plans to keep GDP on track to double in size by 2020, President Hu Jintao says.

Hu also restated a commitment to targets that would double household incomes nationwide a decade, in a speech prepared for delivery at the opening of China's Communist Party Congress. Hu is due to step down as party chief during the congress.

"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 a proper pace, and expand the domestic market," Hu's speech said.



In the current five year plan that runs from 2011 to 2015, the government is aiming for an average annual increase in GDP of 7 per cent. The specific target for growth in 2012 is 7.5 per cent, implying room for the economy cool and still achieve the overall target. Growth in 2011 was 9.2 per cent.

The same plan mandates annual increases in urban and rural household incomes of more than 7 per cent, which would result int them doubling over 10 years.

Foreign Affairs looks at the 10 years of China Ruled by Hu

Foreign Affairs journal looks at China before and after Hu

One obvious metric to assess the performance of Hu and Wen is economic growth -- and grow China did, from a GDP of $1.5 trillion in 2002 to $7.3 trillion in 2011, while maintaining an average GDP growth rate of ten percent. As the economic pie expanded, overall income surged, with average annual earnings among urbanites increasing from $1,000 in 2002 to $3,500 in 2011. Rural residents saw their incomes rise even more sharply, but given that their earnings averaged a meager $300 in 2002, they had nowhere to go but up.

It is no coincidence that over the same period, China’s exports boomed as industrialization of a monumental scale took place and manufacturing provided income to hundreds of millions of workers who left the farm for higher earnings in the city. Although China’s decade of hyper-industrialization followed its entry into the World Trade Organization in 2001 -- the year before the current regime came to power -- the Hu administration played an important part in the story. By standing fully behind the broad political consensus on the “growth imperative” and championing a liberal trade regime, Hu and his associates consistently helped China achieve growth rates that were the envy of emerging markets.

But this massive growth has come at a cost. As China’s trade surplus ballooned to $155 billion in 2011, its economic prospects became excessively dependent on foreign demand, and its growth has come at the expense of domestic consumption. According to official data from the National Bureau of Statistics, over the last decade the decline in the portion of Chinese GDP represented by domestic consumption has been almost entirely offset by the rise in investment. The transformation of Shanghai, whose skyline has become one of the most imposing in the world in less than 20 years, is a testament to the investment addiction. When the financial crisis of 2008-9 swept from Manhattan to Shanghai, the vulnerable Chinese export sector collapsed, prompting Beijing to deploy a hastily concocted $600 billion stimulus package that saved the economy but deepened already significant imbalances. Despite these setbacks, Hu and Wen can claim that they rescued China’s economy from the brink of catastrophe and that average Chinese incomes rose steadily under their watch.

Yet the boom has benefited the Chinese people unevenly while imposing hefty environmental costs on everyone. The amount of energy required to power China’s industrialization led the Hu administration into an aggressive buying spree for natural resources. As a result, China’s total energy consumption more than doubled during the decade, from about 1.6 billion tons of standard coal equivalent in 2002 to 3.5 billion tons in 2011. Moreover , the International Energy Administration reported that China’s energy consumption surpassed that of the United States in 2009 (2.3 billion tons versus 2.2 billion tons), enraging Chinese officials, who vehemently deny that the numbers are accurate. Even more worrying is that energy intensity -- the amount of energy it takes to generate one unit of GDP -- began to climb in the early 2000s, after having steadily declined throughout the previous decade. In other words, Chinese industry was not only expanding at a breakneck pace; it was also becoming highly energy inefficient.

Yet Hu and Wen are leaving office with a slowing economy, increasing popular protests, and a growing credibility gap with the Chinese middle class, which is weighed down not only by inequality but also by constraints on political freedoms. Despite Beijing’s successes over the past decade, it would be difficult to justify a ringing endorsement of the outgoing administration.



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