China: China faces the future eager to continue with economic reforms
November 6, 2015
China’s top leadership confirmed at the Chinese Communist Party’s (CCP) fifth plenum held on 26–29 October that economic reforms will be in the spotlight for the foreseeable future. That said, Chinese authorities also put economic performance back in focus, stating that annual average economic growth will be around 6.5% between 2016 and 2020, with the aim of doubling GDP and income per capita from 2010 levels. The gathering was almost exclusively centered on mapping an outline for China’s 13th Five Year Plan for the 2016–2020 period, which will be officially adopted in the National People’s Congress scheduled for March 2016.
In the communique issued on 3 November, the CPC pledged to increase the contribution of consumption to growth and further rebalance the economy toward services. In the same vein, authorities vowed to upgrade the country’s all-important manufacturing sector in order to improve China’s value chain. Top leaders also identified innovation and the “green” economy as areas that can sustain the economy in the coming years.
The document acknowledged the importance of deepening economic reforms, including the fiscal system, the institutional framework and the state-owned enterprises. Strengthening the ongoing liberalization process and further opening the Chinese economy were also on the agenda. In particular, the government will continue with financial liberalizations, pursue full current account convertibility and promote the inclusion of the Chinese yuan in the IMF’s SDR currency basket. The "One Belt One Road" initiative will be the cornerstone of China’s opening up strategy.
Poverty reduction and strengthening the social welfare net will be important for the administration. With the goal of eradicating poverty by 2020, the government will lift the minimum wage and expand social services such as education and healthcare in the 2016–2020 period. Against a backdrop of a rapidly ageing population, the CPC announced the end of the controversial one-child policy, allowing all families to have two children. While the impact of this new policy will be modest in the short term, it has yet to be seen if the relaxation of birth control restrictions will carry benefits in the future.
The draft for the 2016–2020 Five Year Plan is yet another step toward promoting more balanced and inclusive economic growth. In order to achieve the aforementioned goals, the country has to expand at softer rates than in the past, but at a pace that is still strong. In this sense, the current economic slowdown may challenge Chinese authorities’ intentions. Moreover, while some analysts have started to argue that the latest national accounts data overestimate the country’s actual growth, the FocusEconomics panel’s estimates see the economy expanding below the 6.5% growth target for the period. Although, China has routinely attained its economic goals thus far, the plan for 2016–2020 promises to be enormously ambitious. Therefore, in order to succeed, Chinese authorities will have to step on the gas and quickly start rolling out much-needed economic reforms.