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Hu-Wen legacy sketched out in blueprint

As the National People's Congress debates and endorses the nation's next long-term development plan at this year's session, which opens tomorrow, the theme will be the legacy of President Hu Jintao and Premier Wen Jiabao , whose time in charge of the country will end from late next year.

The 12th Five-Year Programme for National Economic and Social Development, as it is now formally known, will map out the mainland's development from 2011 to 2015 and is the highest priority on the NPC's agenda.

The mainland economy is so driven by market forces today that five-year plans don't have the same rough, but iron, grip they had under Maoist socialism.

But the development blueprint still gives some insights into the government's hopes, worries and targets, as well as indicating changing development and economic priorities.

Although the final document won't be published until after this legislative session, the key ingredients of the plan were settled by the ruling Communist Party's Central Committee, an elite council of some 200 members, in October, and some details have been leaked by officials since then.

The most specific detail leaked was Wen's announcement on Sunday that his government planned to lower the annual growth rate to only 7 per cent in the next five years while shifting the country's economic focus toward higher-quality growth, more widespread sharing of the benefits and a clampdown on environmental misuse.

In the broad-brush document, the party promised a concerted effort to push domestic consumption in an effort to balance the country's investment-skewed economy and to bridge the widening income gap, as well as increase spending on the inadequately funded social security system.

The Hu-Wen administration has overseen an economy with double-digit growth since they came to power in the autumn of 2002 in their party posts.

During the last five-year plan period, the mainland's gross domestic product grew on average by over 11 per cent a year, although the 11th plan had projected 7.5 per cent.

In the past decade, the world's biggest developing economy has jumped from No 6 in the world to No 2, overtaking France, Britain, Germany and Japan, just trailing the United States.

But growth has also created as many problems for the country.

This five-year plan, the second by the present administration, also intends to show how it differs from that of former president Jiang Zemin's administration.

So, it is a last-ditch effort to distinguish the Hu-Wen leadership in terms of addressing the inequalities that have emerged in society.

In sharp contrast to the spotlight on entrepreneurship and the capitalist half of the 'social market economy' under Jiang, this administration has continually emphasised its concern for ordinary people.

'The 12th five-year plan will not follow the past plans that were growth-centric. Rather, it will indicate a shift in future policy direction,' said Shen Jianguang, chief China economist with Mizuho Securities.

The World Bank estimates that the mainland's potential growth - the fastest it can go without causing inflation - will be 8.4 per cent over the next five years, down from 9.6 per cent during the past 15 years.

Wang Qian, chief China economist with JP Morgan, said the 12th plan would emphasise restructuring of the growth model and structural reform.

Shen said one key question for the long-term sustainability of the country's economic growth was how to better distribute the enormous wealth created over the past three decades.

Yang Weimin, a senior planner and deputy secretary general of the National Development and Reform Commission, said that whereas previous five-year plans sought to build 'a strong country', the 12th plan pursued 'prosperity for the people'.

'The policy focus of the 12th five-year plan should shift to the all-new idea and strategy of increasing personal incomes, narrowing the wealth gap, and enriching the people,' Yang said.

According to the All-China Federation of Trade Unions, workers' pay accounted for 56.5 per cent of GDP in 1983. But by 2005, it had fallen to 36.7 per cent.

By contrast, the proportion of return on capital in GDP rose 20 percentage points from 1978 to 2005.

The dramatic decline in the income of workers compared with the dramatic increase in the share of entrepreneurs in the national income has widened the gap between the rich and the poor in several ways.

World Bank figures show that the country's Gini coefficient (which measures income distribution, with zero being total equality and one being total inequality) has stayed above the internationally recognised warning line of 0.4 since 2000, and is now above 0.48.

Hu and Wen, who will step down from their Communist Party posts in late 2012 and from their government positions in March 2013, came into office vowing to create a more balanced economy and an equal society. Their record has been mixed: growth still relies heavily on injections of infrastructure spending, and household consumption has remained compressed.

'We expect no significant shift in major reform commitments in the 12th five-year plan, given that the current administration is unlikely to make aggressive commitments and will leave them to the next administration to complete,' Goldman Sachs economists said in a recent report.

An important test of the next administration's willingness to seize that chance will be whether it expresses its ambitions in broad vows or spells out numerical targets on issues such as desired wage-to-GDP levels, affordable housing, and investment in education, health and social welfare.

China International Capital Corporation chief economist Peng Wensheng said a clear policy objective in the 12th plan had been to align income growth with economic progress.

'What tax and other policies officials will propose in the 12th five-year plan to this end is worth attention,' Peng said.

Economists agree that fundamental reform of the economic system is crucial to achieve the goal.

But many are suspicious of the leaders' determination and ability to do so.

Tom Orlik, a China analyst with Stone & McCarthy Research Associates, said that while Beijing was talking up its reform agenda 'the challenge will be turning that commitment into reality'.

Wang Tao, chief China economist with UBS Securities, said that while the 12th five-year plan would include all the important structural themes and propose sweeping reforms, 'there is no guarantee many of the targets and reforms will be pursued vigorously and successfully'.

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