Chinas 12th Five Year Plan

or how to turn an oil tanker around

January 2011
Alexander van Kemenade
Senior Analyst, Access China
Economist Intelligence Unit

Report card: The 11th Five-Year Plan (2006-2010)

Economic growth/jobs

A+

Beat previous GDP growth records, exceeding target by 2007

External imbalances

Made token efforts to appreciate currency and abolish export subsidies in beginning, but
trade surplus swelled to unprecedented levels in 2007. Efforts were abandoned entirely
during economic crisis. Small signs of progress noted recently.

Excessive investment

Minimum effort to address distortions in financial system eg. interest rate and financial
services liberalisation. Economic stimulus brought credit and investment growth to
unprecedented levels.

Innovation- and servicesbased growth

Some technological breakthroughs (worlds fastest supercomputer) were made, but copycat
culture is still pervasive and intellectual property is still a concern.

Boosting farm incomes

B-

Continued with rural fiscal reforms, with some effect. Food prices also allowed to rise (to
some degree), thus increasing farm incomes. Rural governance remains exceedingly poor.

Reducing regional
disparities

A-

Invested substantially in inland and western infrastructure. Economic growth has gradually
shifted inland

Social security expansion

B+

Enacted a labour law, although enforcement is patchy. State-subsidised health insurance

now nearly universal, first nine years of education now free.

Energy intensity of output

Target reached, mainly by consolidating heavy industry (50% of targeted closures reached),
but helped by last-minute blackouts.

Pollution

Targets for reduction of SO2 emissions and Chemical Oxygen Demand were reached.
However, scope of targets was unambitious. Overall air quality in cities worsened, and a
number of shocking environmental disasters were observed.

Economic rebalancing

Inclusive growth

Environment

China in 2011: Planning for a structural shift

From quantity to quality

Unemployment less of a concern than in the past
However, growth imperative remains

Chinese economy becoming more normal

Labour market developments suggest surplus labour is nearing
exhaustion
Inflation now a permanent concern

Growth will be harder to come by

Demographics, shift from exports to domestic demand, gradual
erosion of competitiveness
Pressure to climb value chain

From 11th to 12th Five-Year Plan

Key themes unchanged, slight shift in focus

Economic rebalancing
Stronger wording

Establish a managed floating exchange rate system determined by market supply and demandpursue
a balanced external accountgradually realise greater convertibility in various types of renminbi assets

Factor price liberalisation

Steadily advance reform of interest rate liberalisation

Electricity, water

Inclusive growth
Housing affordability and security
Gini coefficient targets?
Hukou (household registration system) reform

Environment
Binding carbon emissions reduction targets
Renewables + nuclear

Implementation outlook

Inclusive growth

Environment

Continued consolidation of polluting industries

Renewables + nuclear--hydro to see largest capacity increase
But energy (and fossil fuel) demand will continue to soar

Economic rebalancing

Income distribution will begin to correct itself through labour market forces
Individual income tax adjustment
Monopoly industries
Rollout of hukou reform will streamline access to public services
Health care to receive more funding

Pilot program: Some banks to set their own interest rates

Eventual full float of yuan?

Whats missing

Rural land reform

Establishment of fair systems
for farmers to sell land

Bloated state-owned sector

Crowding out by SOEs, high
degree of regulatory and
political risk for private sector
players

Education
Academic corruption, outdated
curricula, poor environment for
basic research

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