Wednesday, March 22, 2006

China's New Five Year Economic Plan

The new Five Year Plan for Economic and Social Development, delivered by Premier Wen Jiabao at the Fourth Session of the Tenth National People's Congress, is being considered by the Chinese legislators.

Premier Wen Jiabao proposed a GDP growth rate of 7.5% in the years 2006-2010. While China is no longer a planned economy, this prediction reflects the policymakers' wish to maintain a good but controlled, steady growth. In the past five years, China has enjoyed an annual growth of 8% to 9%. In 2005, the growth rate was 9.9%.

It is predicted that by 2010, per capita GDP growth will rise to $2,400 U.S., versus $1,700 U.S. in 2005. This targeted increase does not call for a 7.5% growth in GDP, but policymakers would like to fully utilize current opportunities of continuous economic development. A goal of 7.5% growth in GDP thus strikes a middle ground between overheated growth and the minimum needed for recognizable improvements.

Unemployment rate should be controlled to the level of 5%, with creation of 45 million new jobs in the urban areas, in effect transferring agricultural labor to non farm-related jobs in the cities. Besides encouragement of further urbanization, the government also plans on channeling more money for rural developments, especially in the areas of infrastructure building and education.

China's energy plans have become a rather controversial international issue. As a domestic matter, though, it is expected that energy consumption per unit GDP will be reduced by 20% in the upcoming five-year period due to efficiency improvements. It was estimated that wastfulness and pollution has caused more than 2% of the GDP.

While all these sound good, the increasing income gap between coastal and rural areas will require much more active policymaking addressing structural issues and the fiscal assistance needed to make the policies work.

People's Daily English, China Sets New Target in New Five-Year Plan.

China Center for Economic Research, Policies Target Resources Misuse, Wealth Gap.

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