Wen to leave behind busy legacy

By G. Venkat Raman (China Daily)
Updated: 2013-03-04 07:51

The annual session of the National People's Congress will mark the official transfer of power from China's fourth generation leadership to the fifth. The NPC session will also see Premier Wen Jiabao present his last government work report.

Given the historic leadership transition, it is time to analyze Wen's legacy in terms of the economy and people's livelihood, which are the responsibilities of the premier.

Under the leadership headed by President Hu Jintao and Premier Wen, the Chinese economy achieved near double-digit growth every year during the past decade. In 2003, China's GDP was $1.4 trillion and per capita GDP, $1,090. In 2011 China surpassed Japan as the second largest economy, and the next year, its GDP crossed $8 trillion, or about 55 percent the size of the US economy, and its per capita GPD exceeded $6,000. From the perspective of GDP growth, the government has indeed done a good job.

But the Hu-Wen leadership has also given a new orientation to governance and policymaking by applying the brakes on the GDP-obsessed model of development and shifted toward a development model based on "people's first" approach. This policy shift helped the leadership address various problems caused by the GDP-obsessed model like the widening income gap, growing urban-rural divide and structural imbalances in the overall economy.

Some of the important challenges China has faced in the past decade were in the social security, education and housing sectors, which have always been people's top concerns according to online polls. Their proper assessment, therefore, will provide clues to some of the challenges awaiting the next premier and his team on the economic front.

In terms of social security, Wen and his team have from time to time introduced various social policies to establish social equity and fairness and have been largely responsible for scripting a very favorable turnaround in State-society relations. The "great leap forward" in social security has led to the overall well-being of the Chinese people, especially those in rural areas. For instance, in 2003, only 155 million people were covered by the pension system and 109 million by medical insurance. But by 2012, the figures had risen to more than 480 million and 1.3 billion.

A number of significant policy measures were introduced in the past decade to narrow the urban-rural divide. Some of the ones that deserve special mention are the rural fee-tax reform, rural cooperative medical system, abolition of agricultural tax, comprehensive introduction of rural subsidies, free and compulsory education in rural areas, public housing for the urban poor, basic health insurance for all urban residents, and promotion of rural minimum income guarantee program.

In recent years, profound changes have taken place in the higher education sector because of decentralization and marketization, and local governments have become a large stakeholder in the field. For example, provincial and other local authorities now administer more than 1,500 universities and colleges compared with just 111 by central ministries.

One of the contentious issues in the education sector has been the system of assigning administrative ranks to universities, leading to their gradation (vice-minister, bureau and vice-bureau). Responding to this problem, Wen has argued on numerous occasions in favor of doing away with administrative ranking of universities.

The introduction of reform in higher education to address the growing need for innovation and entrepreneurship was another important move of the Wen team. To that end, Wen has been largely instrumental in earmarking 4 percent of the national GDP for the education sector, a goal that China had been seeking to achieve since 1993. But the irony of the education system is that, despite having one of the world's largest formal education systems, it is not yet oriented toward innovation and progress.

When it comes to housing, experts differ on whether there exists a bubble in the property market. Some argue that the so-called bubble is a cooked-up story. Rising housing prices are an inevitable result of urbanization and the overall increase in the average pay of ordinary workers. Chinese people are less leveraged when buying homes and the government has increased the percentage of down payment for people buying a second house.

Pessimists, on the other hand, argue that property prices have increased disproportionately to the increase in people's incomes. And property developers have doctored their accounts and overvalued their land to get bank loans.

The government has been assessing the situation from time to time and has, as and when possible, introduced policies like increasing reserve requirements for Chinese banks, raising down payments (30 percent for first-time homebuyers and 50 percent for those buying a second home) and discouraging the use of leverage.

China issued stricter measures on March 1 to cool the heated property sector before the annual sessions of the NPC and the Chinese People's Political Consultative Conference, amid public hope of pulling down soaring home prices. The central government said in a notice that homeowners who sell their homes will be levied an income tax as high as 20 percent of the profit they make on the transaction. Prior to the new rules, income tax was 1 percent to 2 percent of the sale price. Apparently Premier Wen made his last effort on house prices as the property market was too overheated to wait for the two sessions complete. But it will take time to see whether the tax works.

In fact, one way in which the government can play a significant role in preventing speculation is by reining in local officials who over-rely on the housing sector to boost their economic performance. An additional problem is that some local governments are engaging in such an act at the cost of even abandoning affordable housing projects for higher-priced material gains.

As has happened in China's political history, the realization of goals set by the next leadership headed by Xi Jinping and Li Keqiang will depend on the management of central-local relations. Reforms in the social security, education and housing sectors necessitate a healthy cooperation and coordination between the central and local governments. China watchers know that the subject is closely related to reforms in officials' evaluation process. Will China's fifth generation leadership be bold enough to tackle these challenges? Perhaps only time will answer the question.

The author is assistant professor, Humanities and Liberal Arts Area, at the Indian Institute of Management, Kozhikode, India.

(China Daily 03/04/2013 page10)