Inflation which remained at 4.9 per cent in February impacts on people’s welfare, and containing it at around 4 per cent, though still above China’s earlier CPI target of 3 per cent, and keeping overall price levels stable would, therefore, top Government agenda, Premier Wen Jiabao said.

The draft of the 12th plan (2011-15), approved on March `14 by the top legislative body, the National People’s Congress (NPC,) has its objective of building a “moderately prosperous society” and accelerating the transformation of the pattern of economic development. It has set a medium-term plan target of 7 per cent on average to facilitate restructuring of the economy with a shift from export-led growth to one based more on domestic demand and improving people’s livelihood. Economic transformation would proceed with continued deepening of reform and opening up with equal emphasis on exports and imports to help reduce global imbalance.

Speaking at the conclusion of the annual session of NPC, Premier Wen Jiabao pointed out, given China’s size and the need to raise the quality and efficiency of the economy, it would not be easy but difficult to achieve even an annual growth rate of 7 per cent during the next five years. According to plan documents, China expects to speed up the process of economic transformation by boosting domestic demand and providing greater resources for agriculture and rural areas and making greater efforts for social progress and participation in development. A target of 9 million jobs per year or a total of 45 million jobs has been set for the 12th plan.

China’s new economic priorities seem to meet partly at least the rising concerns over spreading social discontent and unemployment in the countryside – similar to issues which are at the core of the ongoing widespread unrest in the Middle East shaking up the present regimes. China plans to raise incomes of farmers and poorer sections, lift the tax burden on middle and low income groups, reduce income disparities and clamp down on illegal incomes.

China's rulers have dismissed any analogy between social tensions visible, fuelled by inflation, unemployment and corruption. However, a somewhat reform-minded Premier Wen holds the view that economic reform would not succeed without political reform. 'We are responding to social grievances fuelled by inflation and corruption. If we are to address people's grievances and fulfil their wishes, we must create conditions for people to criticise and supervise government'.

Overtaking Japan as the world’s second largest economy with its GDP at over six trillion dollars, China is now more assertive of its global status and has also been enhancing its military capabilities. The 5.436 trillion yuan (827.6 billion dollar) budget for 2011, approved by NPC, provides for defence expenditure at 601 billion yuan (91.5 billion dollars) a 12.7 cent increase over last year. Noting international concerns, an official spokesman contended that China’s defence budget as a share of GDP was less than India’s and well below that of US which would be spending 725 billion dollars in fiscal 2011. Official explanation is the military budget is at a “reasonable level” balancing national defence and economic development, and would not pose any threat to any country. It would build capacity to respond to multiple security threats and accomplish an array of tasks including emergencies and disaster relief.

Even before the Middle East turmoils, China’s policy-makers saw challenges in 2011 in coping with a “very complex” global economic situation with the multi-speed recovery, the risks of sovereign debt default in euro-zone and the surge in international food and oil and other commodity prices aggravating inflationary pressures worldwide. Premier Wen said in the current year, China would optimize its economic structure and maintain a GDP growth of around 8 per cent and create nine million jobs and keep urban unemployment rate at 4.6 per cent. China’s GDP grew in double digit in the first half of 2010 and despite some slowing down in the third and fourth quarters, 2010 ended with 10.3 per cent growth.

The 12th plan envisages faster development of service sector so as raise its contribution to the economy by four percentage points while urbanization is expected to touch 51.5 per cent by 2015. The principal priority areas for attention are agriculture, infrastructure, growing urbanization and skills and jobs, and an environment for high-end manufacturing and innovation. Expenditure on R and D would be raised to 2.2 per cent of GDP during the plan period.

Strengthening agricultural foundation, impetus to science and education, greater efforts in social development ensuring gains from growth lead to improved wellbeing of rural and urban people. The per capita disposable incomes of urban residents and per capita net income of rural residents would be raised by an annual average of over seven per cent. China will expand channels for people to report on social conditions and solve problems that cause resentment such as unauthorized expropriation of arable land or illegal demolition of houses.

China attracted 105 billion dollars of foreign direct investment in 2010 which is attributed to the robust development of service sector and of the country’s western and central regions. Foreign investment is welcomed in modernizing agriculture, high tech and environment protection industries. Coastal regions which became a world factory for exports would be turned into hubs of R and D, high-end manufacturing and service sectors.

The lower growth rate of 7 per cent in the 12th plan is also regarded as a signal to enterprises that they should no longer “recklessly pursue expansion” but take to more energy-saving and environment-friendly path of development. Monetary and foreign exchange policies are also being nuanced to the needs of combating inflation and global economy. The People’s Bank of China has given up its “moderately loose” policy and opted for a “prudent” monetary party policy as part of bringing inflation under control. The property market would be regulated to bring down soaring prices.

China remains committed to its policy of allowing gradual appreciation of its currency, renminbi, and the plan document says China would expand its use in cross-border trade and investment and press ahead with making the currency convertible under capital account. China has resisted any abrupt currency appreciation or scale down its high level of exports as it would affect large segments of the economy leading to unemployment and cause social tensions. However, it says, there would be equal importance to increasing imports from LDCs and from countries with which it has had large trade surplus to correct trade imbalances gradually and would “properly handle” trade frictions. (IPA Service)