Siah Hwee Ang says China needs time off from externally-driven growth to focus on internal development

By Siah Hwee Ang*

In its 12th Five-Year Plan, China set 25 state goals which it hoped to achieve between 2011 and 2015. 

Just last week, the Chinese State Council announced that all bar one of these 25 goals were achieved in the period.  

The one missing achievement was to maintain annual growth of 6 percent for imports and exports. Although trade volumes were down 8 percent in 2015, China still remains the largest trading nation and the largest exporter in the world. 

Goal highlights 

Below are some of the highlights of the goals that were achieved as part of China’s 12th Five- Year-Plan.

Goal: Reduce the number of restrictions on foreign direct investment by half.
Outcome: 41 of the 79 restrictions have been removed. 

Goal: Investment in railway infrastructure to exceed 800 billion yuan (NZ$180 billion).
Outcome: Total investment in railway amounted to 824 billion yuan.

Goal: Utilise more than 8,000 kilometres of newly built rail.
Outcome: 9,531 kilometres of newly-built railways were put into use.

Goal: Construct or reconstruct 200,000 kilometres of highways in rural areas.
Outcome: 251,000 kilometres of newly-constructed or reconstructed highways were built.

Goal: Create more than 10 million jobs in urban areas.
Outcome: 13.12 million jobs were created in urban areas.

Goal: Reduce the registered unemployment rate to 4.5 percent.
Outcome: The rate was 4.05 percent in 2015.

Goal: Alleviate poverty in the rural population by at least 10 million.
Outcome: Fulfilled. 

A few unknowns

Completing 96 percent of its goals is a major achievement for China. The sheer breadth of these goals makes it seemingly unimaginable for all of them to be achieved at the same time.

Despite all this talk of success, there are some lingering concerns surrounding China’s accomplishments. For example, the current structural reforms are likely to result in layoffs and major increases in unemployment. Most recently, it has been suggested that approximately 1.8 million workers will lose their jobs in the coal and steel industries.

It is expected that the total layoffs in the next two years will be close to 6 million workers. The Chinese central government will allocate 100 billion yuan ($NZ 22.5 billion) in this period to relocate the workers affected by these structural reforms. 

The limited skill sets of these workers is likely to cause difficulties in allocating these funds. Thus, it is premature to think that the booming services sector will pick up some of this slack. Other major lingering challenges in the Chinese economy include its volatile capital market, the depreciation of the Yuan, local government debt, the housing bubble, and the reform of state-owned enterprises. 

On the bright side

China’s slowdown is inevitable. The machine has grown in a largely demand-driven way. To a good extent, this growth has been driven by demands coming from the rest of the world. It is imperative that China take “time off” from externally-driven growth to focus on internal development. 

A long list of major developments could serve this purpose - innovation, supply quality, urbanisation, private sector development, public sector reforms, more focus on the services sector, investment and consumption, infrastructure development, trade agreements, and the One Belt One Road initiative to name a few.

 It is not the easiest of tasks to steer a US$11 trillion economy in so many areas at the same time. 

The caveat is that having a one-party economy can turn an unimaginable task into a possibility. But it might also mean that the move towards market orientation may have to take a back seat for a little while.

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*Professor Siah Hwee Ang holds the BNZ Chair in Business in Asia at Victoria University. He writes a weekly column for interest.co.nz focused on understanding the challenges and opportunities for New Zealand in our trade with Asia.