Start a New Deal in China


Economic Interpretation to the Outline of the Eleventh Five-year
Program   


The two 11-day highest-level conferences in China are closed in
March 2006. This year is the first year of the Eleventh Five-year
program (2006-2010). The two conferences have evaluated the
report on the 'Outline of the Eleventh Five-year Program for
National Economy and Social Development' (hereinafter
abbreviated to the Outline of the Eleventh Five-year Program).
It is the first five-year program after new central government
leaders came to power. Some people also say that the Outline is
the start of a New Deal in China and it has opened a new door
to the development in China, a door for the sustainable
development.
   How should we interpret the Outline of the Eleventh Five-year
Program? Here an economic interpretation to the Outline from the
angle of macro policy analysis will be made. At the same time,
we will also make a brief analysis of the implications to the
Outline that will produce in the economy and the society in
China.


New historical starting point


The economy in China has made gratifying achievements during the
Tenth Five-year Plan period (2001-2005). Not only the economy
has maintained a stable development, constraints resulted from
deflation have also been removed. China is still a developing
country and the per-capita GDP level still lags behind in the
world, but as the total economic amount in China holds the fifth
place and the total trade amount holds the third place, the
influence exerted by China in the world is becoming more and more
prominent. China has been regarded as one of the greatest engines
for the world economy in recent years. However, the economic
development in China has already reached its peak of this stage
and it would be difficult to climb onto another peak in future
without a timely readjustment.


  (1) Internal and external environments have made new changes


In terms of external environment, the position of China fixed
by the international community is in a running-in period.
   With the greater influence exerted by China in international
peace, safety, economy, trade, environment and culture, the
international community has made a greater rebound to China. It
is mainly manifested in the following two aspects: (a) China is
requested to bear more responsibilities and as a result disputes
over the Renminbi exchange rate, the world trade and the
international energy development have been triggered. (b)
Government officials in some advanced countries have kept a more
wary eye on China and taken stricter precautions.
   Nowadays, the Chinese Government has proposed a development
concept of "harmonious co-existence between China and the world".
Nevertheless, things take their own course regardless of one's
own will. The road for a peaceful emergence of China will
inevitably be long and tortuous.
   In terms of internal environment, some defects in the final
stage of industrialization experienced by western countries
have already appeared in China.
   From the late 19th century to the early 20th century, the
industrialization in western countries entered the final stage
of rapid development. Two important features appeared at that
stage: (a) Production was in surplus. The crisis of surplus
production happened periodically and became more and more
serious. A disastrous economic crisis took place in the 1930s.
(b) The personnel income gap became greater and greater and led
to a lack of effective consumption. The personnel income gap and
the production capacity surplus constituted the two sides of a
coin. The blow dealt by the economic crisis to capitalism was
almost fatal. Not only productive forces suffered serious damage,
social safety was also badly endangered.
    The 27 years of market-geared reform (1979 - 2006) is the
period for the rapid development of industrialization in China.
On the whole China has entered the middle stage of
industrialization. The two defects in the final stage of
industrialization experienced by western countries have already
appeared beside us. (a) In the supply/demand relationship
long-time inadequate supply started to shift to relative
production surplus. A reverse change in the macro total amount
has appeared in China. (b) The imbalance between urban and rural
areas, between different regions and the imbalance in residents'
income are widening. Negative impacts of these two defects on
the sound functioning of the economy and the maintenance of the
social stability started to show.


  (2) Deep-seated contradictions in economic functioning and
social life have become evident


In the economic sector, there is a serious imbalance between
investment and consumption in China today. The investment rate
is around twice the average international level. The total
investment scale in projects under construction is as high as
RMB26 000 billion. Based on the investment completed in 2005,
it will take 3 years to digest the total investment scale. Due
to the lack of effective consumption, the production capacity
has become more in surplus. The performance growth in
enterprises started to go down. There are already cries for
guarding against the third unemployment peak. Due to the
overheated investment and the low utilization efficiency, there
are bottlenecks in resources and energies supply and the "growth
limit" in the economy is clearly seen for the first time in China.
   In the social sector, the gap in residents' income is widening
and the Geni coefficient is already above the warning line of
0.4 generally recognized by the international community. The
distribution of social resources is extremely imbalanced
between urban and rural areas and between different regions. It
is difficult for farmers to have medical treatment and to receive
education. Besides, with the development of the economy and the
progress of the reform, the basic mode for the division in social
strata and the diversification in interests has been formed.
Economic rights and political needs of different interest groups
are different and there are more internal contradictions among
people. All these have produced negative impacts on the social
stability.


   (3) The economic and social development in China has come to
a new test


The industrialization in China has been following the mode in
western countries. The subconscious mentality of "Matching with
Britain and the United States" has never disappeared in Chinese
minds. Such a mode is based on the great consumption of resources
and materials. All western countries treaded along that road
without exception. Every time a country treaded past, however,
the road was damaged once. It is now the turn of China. Chinese
people have however discovered that they could not get to the
other side if they continue to go along this road. Such
conclusion can be reached with only a simple arithmetic
calculation. If the per-capita occupancy of resources in China
reaches a half of the per-capita occupancy of resources in the
United States, almost all resources in the world would be
exhausted.
   As a matter of fact, if China continues to develop according
to the present economic mode, it is afraid that another nightmare
would come b