Will 13th five-year plan mark a new start for China's development?
Cary Huang says the Chinese economy can regain its momentum only after successful restructuring, though there will be opposition from interest groups
For more than a decade, growth versus reform has been at the centre of China's debate over its development strategy. Such debate intensified recently as leaders gathered to hash out a new five-year plan amid slowing growth.
The just-ended fifth plenum approved the guidelines for the draft of the 13th five-year plan, which begins in 2016. The gathering came days after the country reported 6.9 per cent annualised growth in the July-to-September quarter, beating expectations but still lower than the government's 7 per cent target.
The days of double-digit growth are now long gone. President Xi Jinping has repeatedly called for adaptation to a "new normal" slower growth to make room for structural economic reforms. But what such a "new normal" rate means for the world's second-largest economy remains contentious among policymakers and economists.
Many economists said this year's growth target would be hard to achieve if the government refrained from intervention as the latest data is a result of intensified policy support since summer.
As part of his main political agenda for his 10-year tenure, Xi wants to see a doubling of China's GDP per capita by 2020 from the 2010 level. To realise that goal, the government should at least strive to achieve an annualised growth rate of 6.5 per cent in the coming five years, which many economists say will be unattainable as reforms that are necessary to ensure long-term sustainability will hit current growth.
The question is how to balance the need for continued growth with the imperative for reforms that disrupt traditional pro-growth incentives.
However, the government's recent series of measures has raised the prospect of another stimulus package or the introduction of Chinese-style quantitative easing.
While the government has not officially announced a new package, it appears to be taking whatever action it deems necessary to ensure growth targets are met. Some economists project 8-10 trillion yuan (HK$9.8- HKS12.2 trillion) worth of infrastructure projects over the coming two to three years. In moves similar to central banks in the US, Europe and Japan, the People's Bank of China has this year pumped hundreds of billions of yuan into the financial system through a mix of short-term, open-market operations, medium-term credit instruments, and direct loans to state-owned banks. Last month, the central bank cut interest rates and reduced banks' required reserve ratios, the sixth time in a year, in reaction to the slower growth data.
As authorities prioritise social stability and Xi's political agenda, the likelihood of a slowdown in implementing reforms is increasing. However, while stimulus measures will help to offset the enormous downward pressure on the economy in the short term, they will not reverse the overall slowing trend. Nor will they reignite higher growth levels.
The government is apparently faced with strong opposition from entrenched interest groups who prefer the status quo. There are also economic risks as reforms could generate unwanted consequences in an economy beset with many problems and distortions.
But the real issue is that the Chinese economy will regain its momentum only when a successful restructuring injects fresh incentives to sustain long-term growth.
Despite all the difficulties, there are still reasons for optimism - at least in the longer term - as market reform will eventually improve resource allocation and thus provide a much-needed boost to efficiency and productivity to sustain growth.
Cary Huang is a senior writer at the Post