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Full-fledged Reform Waiting in the Wings

A proposal for the formulation of the 11th Five-Year Plan for National Economy and Social Development (2006-2010) was examined and approved at the Fifth Plenary Session of the 16th Central Committee of the Communist Party of China (CPC), which concluded in Beijing on October 11.

The central government's Five-year Plan typically lists medium-term policies concerning the country's economic and social development. A communiqué released by the CPC introduced many new concepts, ideas and goals for building a well-rounded and affluent society. Many economists and scholars have highly praised the plan. They also offered more suggestions, according to a Shanghai Securities Journal report on October 13.

Per capita GDP considered

The communiqué released after the plenary meeting read: "In addition to optimizing industrial structure, improving company profits and lowering resource consumption, China sets to double its per capita gross domestic product (GDP) in 2010, from that in 2000, and to reduce energy consumption per GDP by 20 percent than in 2005.

The goal of doubling per capita GDP is an important indicator for the whole plan, said Zhang Zhuoyuan, an economics researcher with the Chinese Academy of Social Sciences (CASS). To achieve that goal, an annual growth rate of about 7.4 percent has to be guaranteed during the five-year plan period, and it is feasible since the country has enjoyed an average 8.8 percent annual growth over the last five years.

This is the first time that energy consumption per GDP point has been introduced into a five-year plan. Such an indicator, Zhang said, can maintain certain economic growth rate and save energy as well. To ensure sustainable growth, many efforts are needed in lowering energy consumption, optimizing industrial structure and promoting technical upgrade and independent innovation.

Zhang pointed out that China's elastic coefficient of energy consumption, which indicates how much energy is consumed to achieve per GDP point, has exceeded 1 point every year since 2001.

Financial reform to be accelerated

Accelerating financial system reform was stressed again in this communiqué. Professor He Fan, assistant director of the Institute of World Economics and Politics under the CASS, forecasts that financial reform will be deepened and accelerated on the basis of previous achievements.

"During the 11th Five-Year Plan period, the market penetration of interest rates will be further boosted; reform of the Renminbi exchange rate system will continue; more monetary policies will be implemented; market tools like interest rates rather than credit adjustments, will be used for economic macro-control; controls on capital accounts will be loosened; and the foreign exchange market developed further," He predicted.

He said: "The banking sector will be further opened to investors, from home or abroad. Private enterprises will also be given access to it. As for financial institutions in rural areas like rural credit cooperatives, some new reform measures will gradually be adopted to provide better financial support to the development of rural areas."

With the creation of split shares (tradable and non-tradable shares), He said that the country's capitals market will shake off stagnation, while some systemic problems will gradually be eliminated. In his opinion, the futures market, which helps hedge risks due to price fluctuations, will be developed quickly and more financial derivatives will emerge over the next five years. China can accordingly gain more rights in determining the price of related products in international market.

Industry watchers eagerly anticipate when the government will break new ground by mixing financial operations. He believed that it is likely for mixed operation to be started during the coming five-year period despite its being treated with caution now.

"People first" concept also needed in tax reform

The communiqué also highlighted that "reform is a strong driving force for economic and social development. Currently, reform has entered its crucial period, so we must be firm when accelerating reform and making breakthroughs in system reform." It also asks to "boost fiscal and tax reform."

Dr. Jia Kang, director of the Research Institute for Fiscal Science under the Ministry of Finance, pointed out that supplementary measures are also needed if scheduled goals are to be achieved. All the measures need to be decided upon now, he emphasized. The construction of the public finance system, some parts of which have been implemented, needs to be more extensive. Meanwhile, the reform on fiscal and tax system should fulfill scientific development requirements if it is to serve the purposes of building a harmonious society and implement the "people first" concept.

Jia also urged the government to push forward the practice that county-level governments manage fiscal expenditures of township governments, while provincial governments supervise that of county governments. Fiscal system reform, as an important part of administrative reform, should also be expedited.

Jia suggested that tax reform over the next five years should be carried out step by step. The adjustment of some taxes, technically easy to make, should be deliberated more thoroughly since it concerns the interests of the masses.

Independent innovation stressed

The communiqué points out that "China should have a group of enterprises which have their own independent intellectual property, internationally-known brands or strong international competitive strength," and "make independent innovation the main stimulus for industrial structure development and a transformation of economic growth patterns."

"After high-speed growth in the country in the past over 20 years, China has entered its medium-phase of industrialization," said Huang Qunhui, director of Business Management Research Office under the CASS.

"How to become an industrial power," Huang said, "is fundamental to industrialization, the main restriction being a company's inability to innovate."
Huang said that a nation's competitive strength, in some sense, can be embodied in the competitive strength of its enterprises. Enterprise's competitive strength is decided by cost and differential advantages. To achieve differential advantage, technical innovation and management upgrade are needed. In an increasingly competitive environment, China should not rely on low cost production. Instead, it should quicken its pace towards full-fledged industrialization. Developing a longstanding and sustainable competitive strength takes a long time, and the eleventh five-year plan is only a start.

Although Chinese products are prevalent in almost every market around the world, few manufacturers own any intellectual property, high-value-added products or possess strong competitive strength. Thus, enterprise should emphasize more on technical innovation. China's state-owned enterprises (SOEs), in particular, should lead the way.

The ruling Communist Party of China will continue to solicit opinions from citizens from all walks before it submits the proposal at the fourth session of the 10th National People's Congress for discussion and approval next March.

(China.org.cn by Tang Fuchun October 20, 2005)

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