Growth model needs modification
Wang MengkuiChina Daily  Updated: 2005-05-11 06:22

Industrialization, urbanization, improving the market system and further integration into the global economy will be the four basic tasks the Chinese economy will undertake in the next five to 15 years.

As the 10th Five-Year Plan period (2001-05) approaches its finishing line, attention is shifting to how the economy will fare in the 11th Five-Year Plan period (2006-10) and beyond, as far as 2020.

According to the blueprint charted at the 16th National Congress of the Communist Party of China in 2002, China's gross domestic product (GDP) will be quadrupled in 2020 from its 2000 figure.

So the next 15 years will be crucial .

There are both favourable and adverse factors, so if the situation is properly managed, obtaining the goal is possible. But if it is all poorly managed, problems are likely to emerge, the Development Research Centre of the State Council forecasted.

It is recommended that the government should pay special attention to the following four areas when drafting economic policies for the next 15 years.

First, the current way the economy grows must be gradually changed.

The current economic growth model, which features huge resources consumption and low efficiency, is not sustainable.

The existing economic structure, the main reason for the current economic growth, should be upgraded.

Environmentally-friendly industries with a large high-tech content should be encouraged.

Developing high-tech and the service industries and transforming traditional industries by using new technology are what the government should do to change the current growth model. The economic system and policy defects are, to some extent, to blame for the existing extensive economic growth mode.

The flawed investment structure, for example, leads to many poor or even ineffective investment projects, which is often in the form of excessive investment in some sectors.

A more acute problem, however, is the distorted pricing mechanism in our immature market economy, a mechanism that often fails to rationally allocate resources, resulting in huge wastes.

Low water prices and low land prices have also led to huge wastes in these two precious areas.

Changing the economic growth mode is a must if China's industrialization is to continue to do well.

Second, urbanization should be pushed ahead more vigorously.

Currently, China's urbanization is markedly lower than the world's average.

It is expected that the next five to 15 years will witness a quickening of urbanization.

If we maintain the average urbanization speed since 1995, China's urbanization will reach 50 per cent by 2010 and 64 per cent by 2020.

Even if we grow at the average urbanization speed since the 1980s, China's urbanization will hit 47 per cent by 2010 and 55 per cent by 2020.

Such sweeping urbanization will create huge space for economic growth.

Urbanization is a gigantic project involving moving millions of farmers into non-agricultural sectors, a process widely expected to continue well after 2020.

How to create enough jobs for those farmers in towns and cities is crucial to the success of urbanization.

During urbanization, special attention must be paid to the living standards of farmers whose lands have been taken in the urbanization process.

According to the National Bureau of Statistics, the income of farmers whose lands were seized for urban development has plummeted by 46 per cent.

The number of landless farmers due to urbanization is increasing by 2 to 3 million every year.

So how to feed them, reform and improve the current land system and protect farmers' rights is a pressing task.

It is important that urbanization should be pushed ahead in an orderly manner to avoid creating social tension.

The third question that merits special attention in the next five to 15 years is how to solve and manage social problems such as unemployment and the widening income gap.

These are two issues that have a huge bearing on social stability, so they must be tackled well and in good time.

As the country transforms from a planned economy to a market one, a workable social safety net is badly needed.

Finally, in order to achieve the grand economic target set out in the Party's blueprint, China should continue to press ahead with its opening-up policies.

With the changes in China's international economic standing and the external environment, the nation should adopt a global strategic perspective when viewing the relationship between opening-up policies and the goals of a modern country.

Continued dynamic economic growth in the next five to 15 years cannot be achieved unless China continues to develop vigorous economic and trade relations with the outside world. Specifically, the following is very important to this strategy.

China is now the third largest trading power in the world. However, the products it exports are mainly labour-intensive ones. This must be changed. China must now shift its emphasis from quantity to quality of foreign trade.

We should also strive to create a favourable external environment.

As China rises economically, it is inevitable that the international economic landscape will be adjusted accordingly. This is likely to raise skepticism in some corners of the world with people asking which way China will go. The country must free the international community of its doubts by better communicating with the outside world.

In addition, a risk-prevention finance mechanism should be established as China is rapidly moving from a closed economy into an open one.

The risks range from balancing the books to problems in the country's colossal foreign reserves. Such a mechanism is vital for sustainable economic growth and national economic security.

In a nutshell, the four areas to which the government should pay special attention are the same four tasks the Chinese economy is to follow in the next five to 15 years.

(China Daily 05/11/2005 page4)

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