The Lianghui, or “Two meetings”, of China will be commenced later on Thursday (3 March 2011).
In this big annual political event of the Communist Party of China, The National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC) will meet and discuss stuff.
This year marks the start of the 12th five-year plan of China, thus the coming big event will be of particular interest. The proposal for the 12th five-year plan has been published late last year, and the final approval will be made in this big political drama
As far as the economy is concerned, I think there are two major themes for the coming big events and the 12th five-year plan. The first big theme is to rebalance China Economy and improve livelihood of people. The government will want to shift the growth model from export and investment driven to domestic consumption drive, and will focus on the quality of economic growth, not just the growth rate itself. As Wen Jiabao put it on Sunday when he chatted with internet users, the growth target for this new five-year plan period will be 7% annually, which is much lower than the growth in 2010. The government will want to see a fairer distribution of income so that more people can benefit from economic growth, and that will hopefully help the growth of domestic consumption. The government will also want to further modernisation of agriculture, and to ensure sufficient supply of affordable housing.
The second big theme is to upgrade industries and invest into seven strategic industries. Sources have previously said the government may invest US$1.5 trillion in seven strategic industries, which will include information technology, alternative energy, new materials, biotechnology and medicine, alternative-energy powered vehicles, high-end equipment, etc. The goal is to modernise industries, improving the structure of the economy, and to improve value-added of industries.
Besides these two big themes, reform will continue on different fronts, including financial system, exchange rate, healthcare, etc.
These are, of course, some medium to long-term objective. People will also pay close attention to problems of inflation, high home prices, corruptions and employment in addition to above mentioned big themes.
I think the Chinese government understands the problems in the economy very well, and they are clearly well aware of the urgent need for restructuring its economy. The current growth model which relies too much on investments is not sustainable, as excessive investments in infrastructure will likely result in over-capacity.
Though it is quite unclear if the Chinese government is able to shift their mind-set. For instance, recently FT reports that China plans to build 45 airports in China despite making losses in 175 existing airports. That is, of course, not to say that Chinese government should stop investing in anything, but to invest in what is necessary, not for the sake of boosting growth.
For investors in China, here’s an interesting statistics: from 1995 to 2010, China stocks rose 11 out of 16 times during the period when these big meetings were held. For investors with longer-term horizon, you may want to see pay more attention to the strategic industries that the government wants to invest in.
I will have more to say as the event starts to unfold later.
On Rebalancing China Economy: Are Demographics Helping?
This article originally appeared here: China “Two Meetings” To Be Commenced On Thursday
Also sprach Analyst – World & China Economy, Global Finance, Real Estate
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