China's modern planning system

By Heiko Khoo
0 Comment(s)Print E-mail, June 22, 2015
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The 12th Five-Year Plan comes to a close this year and the 13th Five-Year Plan is being elaborated, so it is worth looking at how China's planning system functions so we can better understand the forces driving China's economy.

For many years the ideas of Professor Barry Naughton from the University of California dominated Western opinion about China's economic system. He argued that markets and the private sector took command from 1993 onwards. However, in 2013 a detailed study ("The Reinvention of Development Planning in China, 1993-2012") by Sebastain Heilmann and Oliver Melton showed that state planning was revitalized in China between 1993 and 2012 and it remains "central to almost all domains of public policy making and the political institutions that have fostered China's high speed growth and economic stability."

The Central Committee of the Communist Party of China (CPC) initiates the process of formulating the Five-Year Plan. It draws up the initial guidelines that are converted into thousands of sub-plans to be implemented by government entities at all levels of administration. After the initial approval of overall plans an unceasing process of coordination and evaluation draws together the operations of state and party agencies.

This system differs from the methods used in the so-called "planned economy" era as it does not command the use of resources. Modern plans are designed to meet operational objectives by using macroeconomic policy carried out by government agencies.

China's top planning agency -- the National Development and Reform Commission -- intervenes in macro-economic policy to help meet targets and objectives. China's modern planning system is based on and acts for the market. However, the power of state-owned enterprises and banks as well as state control over the use of land resources is combined to drive the nation's ambitious programme of urbanization. For example, under the 12th Five-Year Plan, by the end of this year 100 million people will have been given publicly subsidized housing for rent or purchase.

Since 2001 planning has been concentrated on strategic issues and policies, and has allowed flexibility to the institutions responsible for implementation. Establishing proportionality and balancing of supply and demand became central objectives. Imperative targets were abolished and the market dominated resource allocation. Planning has focused on qualitative targets and on coordinating the urbanization process and the development of the interior and the west of China. It has also targeted scientific, technical, environmental and human resource issues.

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