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Intensive growth mode has extensive benefits

China Daily

The country's 11th Five-Year Plan (2006-10) marks a shift away from the traditional extensive growth mode almost exclusively geared to GDP increase, to a more intensive one guided by scientific concepts of development and orientated towards balanced and harmonious growth.

In his report on government work delivered to this year's session of the National People's Congress on March 5, Premier Wen Jiabao said that accelerating the re-alignment of the economic structure and promoting the transformation of economic growth mode constitutes one of the overriding tasks during the 11th Five-Year Plan period.

The premier went on to say that the crux of the problems springing up in the course of China's economic development lies in irrational economic structure and in the extensive growth mode.

It follows, therefore, that high-tech industries, manufacturing and energy sectors will enjoy priority in the next five years.

Information, financial, insurance, logistics and tourist sectors will also be largely promoted.

Bringing about an energy-saving and environmentally-friendly society features prominently in the 11th Five-Year Plan. A number of projects regarding a cyclic economy, ecological-system protection and pollution treatment have already been planned in order to raise energy-use efficiency and stave off environmental deterioration.

Over a fairly long period of time, the country's economic advances have been achieved at the expense of the environment.

This is going to be changed. The environment and the economy should advance together in harmony, as the five-year plan advocates.

 According to Zhou Shengxian, director of the State Environmental Protection Administration, development under the outdated growth mode resembled combustion, which burnt up resources, produced GDP and left a residue of pollution.

But the principles of scientific development require that GDP be produced with minimal resource consumption and pollution. Or in other words, the economy should continue to grow, but at the same time saving energy and befriending the environment.

It is urged that the environment's pollution-holding capability be gauged before any industrial project is initiated. No project shall be launched when the local environment's pollution-holding capacity is at its limit.

Past experience may provide us with a frame of reference with regard to the mode of economic development.

During the 10th Five-Year Plan period (2001-06), China's GDP registered an average 9.5 per-cent growth each year. The total GDP volume of 2005, for example, hit 18,232 billion yuan (US$2,257 billion), ranking the country fourth among the world countries. Revenue reached the 3,000 billion yuan (US$369.9 billion) mark and foreign exchange reserves exceeded US$800 billion.

At the same time, however, disproportionately large amounts of energy were consumed and environmental pollution worsened. Also, innovative power of the nation remained weak, which explains why the core technologies of many Chinese products are patented in foreign countries.

Energy and resources strain

At present, the country's growth mode is still marked by high capital input, high resource consumption and high waste discharge.

While strained resource supply still poses a bottleneck for the economy, the environment keeps deteriorating, the ecological system is degenerating and waste of resources stands at a strikingly high level. In this context, sustainable development is hard to be achieved.

The huge population and resource shortages determine that we should not trek along the old rut of the extensive growth mode any more.

The per head arable land in China is only 40 per cent of the world average and the pitiful figure is likely to slide further in the scenario of quickened pace of urbanization and further demographic increase.

Our fresh-water resources are just a quarter of the world's average level, a situation compounded by uneven distribution. As a result, more than 400 Chinese cities have deficient water supplies, 110 seriously so.

In addition, China's per capita shares of petroleum, natural gas and coal are respectively 11 per cent, 4.5 per cent and 79 per cent of the world average.

As a result, the country is becoming increasingly dependent on overseas resources. In 2005, for instance, the country imported 136 million tons of oil, with the total consumption standing at 317 million tons.

The environment will no longer be able to bear the pressure exercised by the extensive mode of economic growth.

A total of 48.2 billion tons of industrial waste and domestic sewage, for example, were discharged in 2004. In the same year, the country's carbon dioxide emissions were second only to the United States.

The assessment of the world countries' sustainable environment indices, which was issued by the World Economic Forum in Davos, 2005, placed China 133rd among 144 countries and regions.

Ecological degeneration also means calls for changing the growth mode grow louder.

Currently, for example, 3.56 million square kilometres of land in the country are suffering from soil erosion, accounting for 37 per cent of the nation's territory. About 1.74 million square kilometres of land have suffered desertification, and more is threatened. Overgrazing has given rise to serious grassland degeneration.

The low resource utility rate also contributes to the urgency of changing the growth mode.

In 2004, for instance, China churned out 4 per cent of the world's total GDP but consumed 8 per cent of the world's crude oil, 31 per cent of coal, 10 per cent of electricity, 30 per cent of iron ore, 30 per cent of steel, 19 per cent of aluminium, 20 per cent of copper and 40 per cent of cement.

The current energy use in the country's eight high-energy consumption sectors such as steel, power generation and chemicals is 40 per cent higher than the world's most advanced level.

Central-heating energy consumed in a given area of a Chinese apartment is two or three times more than in advanced countries.

Policy factors

Although switching the extensive growth mode to intensive one has long been urged since the reform and opening up started in the late 1970s, the outdated mode dies hard. A number of institutional and policy factors help explain why.

First, governments at various levels still enjoy excessive power over resource distribution. Local governments are exhibiting very strong investment and development impulses under the current administrative or economic set-up. Many localities, therefore, rush to expand their economic size and go in for high-energy, high-pollution industrial projects.

Second, resource prices are in many cases distorted, failing to reflect the real value. This is because certain kinds of resources are still priced by the State, operating on the inertia of the old planned economy. The prices thus determined are often a bit too low. In addition, enterprises of different ownerships are treated differently in terms of the price of the same resource.

Third, monopoly still reigns in some sectors. Profits for the monopoly enterprises are taken for granted no matter whether the product quality is good or not.

Fourth, performance of local governments has long been gauged quantitatively by output values and economic growth rate to the neglect of energy consumption and the environment. Qualitative measurement of economic growth has been largely ignored.

Fifth, laws and rules covering intellectual property rights protection have remained incomplete and the institutional climate for innovation is yet to be brought about. This is one of the main factors at the root of the extensive mode problem.

In sum, the extensive growth mode must be immediately shifted to an intensive one, something the 11th Five-Year Plan has set the stage for.

The author Niu Li is an economist with the Economic Forecasting Department of the State Information Centre.

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