It’s been a long wait…is it finally over? With reports coming out of the ruling Chinese Communist Party’s Central Committee meeting in Peking this past weekend we may be seeing a glimmer of light on a policy pivot by the governing elite toward the much needed rebalancing of the Chinese economy!
The mandarins met to establish the key themes for the next five year development plan that begins next year. For a long time many China watchers, including this one, have warned about the economic imbalances that exist within China’s booming economy. The one sided export focus of Peking policy makers has reached the red line…indeed 70% of the PRC economy is now geared toward exports versus 30% for domestic consumption.
This has contributed to many of the well documented and serious global trade distortions that we have today…especially those within Chimerica.
So where’s the news here? Well..it begins with President Hu Jintao’s recent promotion of the concept of “inclusive growth”. There now appears to be a broader CPC recognition that long term policy must shift its growth model away from creating more export capacity toward encouraging more domestic household demand to help shore up GDP growth as global consumption declines. Of course this is not going to happen overnite as the PRC economy has become addicted to exports and is intoxicated by cheap labour. The fact is..to promote more balanced growth…workers and farmers require higher wages, affordable housing and a more comprehensive social safety net to encourage consumption versus saving. Because of the uneven economic growth a huge wealth gap has developed between the urban rich and rural poor. Therefore there are great social and political pressures on the government to deliver this policy pivot and early indications are from this weekend’s meeting that the shift has begun.
The new growth model will focus more on “structural adjustments” and less on hyper growth rates. This is a shift from the previous growth at any cost strategy….the goal now according to Hu is to have a growth pattern that benefits all because the old uber growth model is no longer sustainable. recognising this new political and economic reality the central government is expected to lower the annual GDP growth target from 7.5% to 7% in the 2011 -15 period. (now that is news!) With increased spending on social welfare it will probably be difficult for China to achieve the sustained double digit growth they have in the past.
There of course will be sceptics to the Chinese “inclusive growth” pivot. Perhaps that’s why the MSM is not paying much attention to this story. Indeed the current leadership including President Hu and Premier Wen came into power promising to create a balanced economy and provide more social reforms. Their record on both fronts is mixed as the economy has continued to lean on the export side of the growth equation and the domestic wealth distortions have only increased. But that was before the global financial crisis took root which has only catalyzed the fact that both Hu, Wen and the Chinese people have become victims of their own export policy focus and economic success. In a world that is moving quickly toward increased currency wars, more protectionism and suffering from a lack of global leadership… this apparent move by Peking policy makers to speed up the movie toward faster economic reform and increased liberalism should be a welcome step.
As the counterproductive Yuan currency saber rattling heats up in Congress…let’s hope the other half of the Chimerica relationship is paying attention to what’s really happening in Peking!
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