Twelve months ago, China added US$285 billion to its undervalued GDP and, just like that, hopped to number five in the global economic rankings. It also moved five years closer to replacing the US as number one.
This set the tone for a 2006 that was, like other years before, dominated by the China growth story. But this time it came with words of warning: a growth model overly dependent on investment and exports is not sustainable, economists said. Consumption must play a greater role.
Pressure was also being applied from Washington, where politicians were calling on Beijing to sell less or buy more – anything, so long as China’s trade surplus with the US, set to pass US$150 billion in 2006, stopped spiraling out of control.
Beijing said it would take action and did so – on the investment front, at least – with interest rate and bank reserve ratio increases intended to curb lending. Investment in factories, real estate and other fixed assets has since shown signs of slowing but it remains to be seen whether this is fast enough. GDP growth came to 10.7% in the first nine months of 2006 and the State Information Center optimistically predicts 9.5% for 2007.
For President Hu Jintao, 2007 will be about plugging the holes created by an economy pursuing growth at any cost.
China carries the scars associated with industrialization – dust-filled skies, waste-laden rivers and dying land. But symptoms of malaise can also be found within the Chinese people themselves.
Consumption-led growth is being held back by people’s propensity to save rather than spend, which can in turn be traced to their concerns about providing for themselves in the event of illness, injury and old age. Maybe the Chinese have never had it so good. But what do they do if it all turns bad.
The absence of a social safety net, and its consequences, are keenly felt by Beijing, as is the overall wellbeing of the population, both at home and at work.
Plowing dividends from state-owned enterprises into social projects; reforming the country’s creaking pension system so that the youth of today aren’t swamped by the needs of the pensioners of tomorrow; encouraging firms to fulfil the role they once played in the community but in the framework of corporate social responsibility programs. Plans such as these are set to find even more traction in 2007.
The political hook is the 17th party congress due in autumn.
Having faced criticism over the glaring social inequalities that remain in China, Hu placed the needs of the rural inhabitants at the forefront of the current 11th Five-Year Plan.
If the "new socialist countryside" is going to be his contribution to Communist Party lore, the president must ensure that promises made to the rural poor deliver a climate in which those left behind by the economic miracle are propelled forward.