China needs to deepen its economic reforms, double its GDP by 2020 and pour more state money into key resources, the country’s outgoing president, Hu Jintao, has said in his last major speech before formally seceding the position of General Secretary of the Communist Party.
After 10 years of rule in which China roared into the position of the world’s second-largest economy, largely on the backs of factories supplying cheap goods abroad, Mr. Hu has also been criticized, along with Premier Wen Jiabao, for faltering on economic reforms to transform China’s economy away from its heavy dependence on investment– and export-driven growth.
His successor, current vice-president Xi Jinping, now faces a long wish list of lofty if vague targets, including increasing consumer spending, boosting state investment in China’s less-developed west and in rural areas, encouraging entrepreneurs at home, promoting more foreign acquisitions and investing more capital in state-owned enterprises operating in “key fields” seen as “vital to national security.”
Mr. Hu, addressing the opening of the 18th Communist Party Congress, also spoke in favour of making the country’s exchange and interest rates more market-based, and promoting the yuan’s convertibility under the capital account “in due course.”
There was very little in Mr. Hu’s speech that was new or surprising; the U.S. election this is not. But international expectations for the new administration, expected to be fully in place with Mr. Xi’s formal rise to the presidency in March, are running high as China juggles its slowing growth and need to rebalance between rich and poor at home with outside demands for greater transparency in its foreign transactions.
“I think [the challenge] should be how to maintain the high growth rate while trying also to tackle problems like inflation, social instability and so on,” said Li Lixing, an associate professor in the China Centre for Economic Research at Beijing University. “I think it’s attainable. Reforms should be carried out in order to achieve that goal.”
In the last five years, China has cracked down hard on Tibetan unrest, coped with a devastating earthquake in Sichuan province, hosted the 2008 Beijing Olympics, and guided its economy through a major international economic crisis to became the world’s second-largest, in 2010. Its corporations, the largest and most powerful of which are state-owned, have become world players in mergers and acquisitions and its currency is steadily growing in international profile, despite China’s closed capital account.
But Chinese policy makers are also facing demands to let its currency float more freely, further dismantle the monopolies held by state-owned enterprises, and open its market further to foreign investors, all while balancing a dangerous and growing income gap between rich and poor, environmental disasters including contaminated waters and some of the world’s worst air pollution, and the need to maintain economic growth by moving away from state-driven investment. About 50 per cent of China’s GDP last year was drawn from investment; just over 35 per cent came from domestic demand.
“[The incoming leaders] are being left with, in some ways, a mess. There’s an economic adjustment that everyone knows, or has known for a few years now, that China has to take,” said Patrick Chovanec, an associate professor in Tsinghua University’s School of Economics and Management. Doubling the 2010 GDP by 2020 suggests an average annual growth rate of 7 per cent, which is less than this year’s target of 7.5 per cent, though still higher than many economists’ predictions.
“In some ways that’s good, they shouldn’t be trying to boost GDP growth just for the sake of boosting it,” Prof. Chovanec said. “If the economy continues to deteriorate, if they continue to face strong headwinds and this general economic adjustment, I think that will force some hard choices onto the new leadership, not necessarily onto their time frame.”
However, the economic bent of the new Standing Committee of the Politburo is unlikely to be clear before the middle of next year.
“I think it’s safe to say within China and probably outside of China the hopes and expectations that are being placed on the new leadership are extremely high and that reflects some of the disappointment in the outgoing leaders,” said Andrew Batson, director of research at GK Dragonomics in Beijing. “It may be difficult at first to distinguish between a controlled, moderate pace of societal and economic reform and a more aggressive pace because neither one of them might look dramatic to outsiders.”