What China's 12th Five-Year Plan Means To The Average Zhou Blow

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Photo: Flickr: Helga’s lobster Stew

For the first time in nearly two centuries, China has returned to a position of global economic and diplomatic power, but the growth model is no longer sustainable—and China’s savvy leaders know it.

Nick Consonery, lead analyst on things China for the Eurasia Group, a leading global political risk research and consulting firm, believes that China has correctly diagnosed its economic challenges in the 12th FYP and has countered the problems with viable solutions. The dilemma, however, is prioritizing what needs to happen today.

“Beijing will achieve some of its goals,” said Consonery, “but ultimately, the country’s leaders lack the political stomach and sense of the moment to implement a comprehensive and ambitious rebalancing agenda.”

Few FYPs have carried as much weight and significance as the 12th (2011-2015). It is the country’s rebalancing blueprint, intended to spur a fundamental policy shift. The scope and scale of China’s current challenges suggests that this FYP will chart Chinese economic growth for longer than five years, more than likely, into the next decade and beyond.

Beijing’s core objective is to adjust the country’s economic growth model—and it needs far more than just a tweak. Despite China’s remarkable successes, Premier Wen Jiabao—the country’s econ czar—has repeatedly called its current model “unbalanced, unstable, uncoordinated, and unsustainable.”

“Such disequilibrium will have to be corrected if Beijing is to sustain both its economic performance and political legitimacy, especially as domestic popular expectations and social pressures intensify,” said Consonery.

One important area that Beijing must address and resolve is the income gap between the business elite and the average Chinese citizen. This disparity and its social consequences are likened by many China watchers as a volcano waiting to explode.

While the average hourly wage for a factory worker is about 75 cents an hour, China’s headcount of millionaires and billionaires continues to soar. China has just over a million millionaires, up 31 per cent from the year prior, ranking China third in the world in terms of number of millionaire households. It also has 115 billionaires, up from only 64 a year earlier and ranking second only to the United States.

Consonery predicts China will make some headway in the area of income redistribution through mandatory wage hikes and increased spending on affordable housing and the social welfare system, but cautions that it will take more to create the consumer society that the 12th FYP strives for.

“China will fail to introduce the bold reforms necessary to meaningfully redistribute wealth from corporations and government to households,” said Consonery. “For instance, big state-owned firms will fiercely resist contributing large chunks of their dividends to government social security funds.” Higher taxes on companies and on the rich will also face stiff resistance and be difficult to achieve within five years.

To read more on China’s 12th Five-Year Plan and what it means for the average Zhou Blow, download Eurasia Group’s “China’s Great Rebalancing Act.”

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