China Must Boost Spending for Growth
Monday, 18 October 2010

China must invest in welfare and housing so workers and farmers provide the spending for sustained growth, a top economic planner said in a report on Monday, while Communist Party chiefs drew up a long-term development blueprint.

The Chinese economy is set to grow by about 50 percent to $7.5 trillion by 2015, powering past Japan and moving closer to the biggest economy, the United States. But a meeting of the party's Central Committee, ending on Monday, has dwelt on domestic imbalances that could drag down that ascent.

Zhang Ping, head of the National Development and Reform Commission, which steers economic policy, said the key to surmounting those strains was expanding household spending, encouraged by stronger social welfare, cheaper housing, and resource price reforms.

"Expanding domestic demand is the guiding long-term strategy of our country's economic and social development," Zhang told a Communist Party newspaper, the Study Times.

"The focus of the next stage of economic work must be tapping the role of domestic demand, especially consumer demand, in generating economic growth," he told the paper, issued by the Central Party School, which trains rising officials.

Zhang's remarks appeared near the close of the meeting about the next five-year development plan starting in 2011.

President Hu Jintao has said the plan must promote more "inclusive growth", narrowing the gap between urban and rural incomes and boosting domestic demand.

State media will announce the results of the closed-door four-day meeting after it concludes.

The decisions may include promotions of Vice President Xi Jinping and other officials who are in line to succeed Hu and Premier Wen Jiabao after late 2012, analysts have suggested.

Tapping greater household spending while easing strains on resources and the environment presents Beijing with a daunting list of reforms that could hit the raw nerves of companies and government officials who have benefited from current policies.

Zhang said changes needed to secure growth included further freeing up resource prices, raising welfare spending to encourage citizens to spend more, increasing the incomes of ordinary workers, and providing cheaper housing.


The government, Zhang said, must "continue making a priority of welfare and improving people's livelihoods, directing more public resources into that area.

"In price reforms, the focus will be on actively and steadily advancing resource and raw material price reforms," he said, noting the changes would cover oil, water, natural gas and power.

Such reforms are also likely to be signaled in the next five-year plan, and will be part of the legacy-building effort for President Hu and Premier Wen.

Hu and Wen came to power vowing to create a more balanced economy and equal society. Their record has been mixed, with growth still leaning heavily on injections of infrastructure spending, while household consumption has remained compressed and rural income growth still lags urban levels.

China's average per-capita income for the richest 10 percent was 65 times that of the poorest 10 percent, according to a Credit Suisse-sponsored study by Chinese economists. Even an official estimate of a 23-fold gap is a stark one for a government pledged to socialist equality.

Public ire has centred on the real estate market, where price rises have defied government efforts to cool the market, pushing prices in many cities beyond the grasp of many residents.

The government plans to build 5.8 million housing units for poorer citizens this year, which analysts have estimated will involve spending of up to 400 billion yuan ($60.2 billion).

That compares with total investment in real estate of 2.39 trillion yuan in the first seven months of the year.

Zhang said a more sustained effort was needed.

"We must increase government investment in publicly subsidised housing," he said.

The national parliament will formally approve the five-year plan early next year.


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