China’s Hu promises economic reforms, higher incomes

BEIJING (Reuters): China will reform to make its currency and interest rates more market-based, boost overseas investments and plough more state funds into industry as part of plans to keep GDP on track to double in size by 2020, President Hu Jintao said on Thursday.

Hu also restated a commitment to targets that would double household incomes nationwide in a decade, in a speech prepared for delivery at the opening of China’s Communist Party Congress. Hu is due to step down as party chief during the congress.

“We should firmly maintain the strategic focus of boosting domestic demand, speed up the establishment of a long-term mechanism for increasing consumer demand, unleash the potential of individual consumption, increase investment at a proper pace, and expand the domestic market,” Hu’s speech said.

“We should develop a multi-level capital market, take steady steps to make interest rates and the renminbi exchange rate more market-based and promote the renminbi’s convertibility under the capital account in due course,” it added.

Hu’s restatement of existing pledges gave no specific timeline for their delivery, nor any fresh indications of size of the spending plans or the source of funding for them.

While there was little fresh in the speech, economists said the reiterations were important given an economic downdraft that has seen growth slow for seven successive quarters and left 2012 on course for the lowest full year of growth since 1999 – albeit at a 7.7 per cent clip that is the envy of developed economies.

“Because there’s been so much talk about growth slowing in China, reiterating the target in this speech was important. But the numbers are not new news,” Tim Condon, head of Asian economic research at ING in Singapore, told Reuters.

China’s leaders have, since the days of Deng Xiaoping’s landmark reform program in the late 1970s, pledged to double the size of the economy every 10 years. In fact, the economy has grown far faster, achieving an average annual increase of around 10 percent in the last three decades.

In the current five year plan that runs from 2011 to 2015, the government is aiming for an average annual increase in GDP of 7 per cent. The specific target for growth in 2012 is 7.5 per cent, implying room for the economy cool and still achieve the overall target. Growth in 2011 was 9.2 per cent.

The same plan mandates annual increases in urban and rural household incomes of more than 7 per cent, which would result in them doubling over 10 years. The disparity of incomes has become a politically sensitive issue in China over the last decade as the gap between rich and poor has widened into a chasm.

About 13 per cent of China’s 1.3 billion people still live on less than $ 1.25 per day according to the United Nations Development Programme and average urban disposable income is just 21,810 yuan ($ 3,500) a year.

Meanwhile China has 2.7 million US dollar millionaires and 251 billionaires, according to the Huron Report.

Gary Liu, Executive Deputy Director of the think tank CEIBS Lujiazui Institute of International Finance said addressing this dichotomy should be Beijing’s top priority as there was growing discontent among people.

“The challenge is how to realise economic objectives without sacrificing social stability,” Liu said. “For the next 10 years, that will be different from the last 10 years.”

Aside from the wealth gap, other serious problems arising from the old economic model, for all its success in generating growth, included corruption and pollution.

“The public, the people, feel they have not benefited enough. Yes, incomes have been rising, but they have not kept up with costs, such as housing costs,” Liu said.

“The point is not just to double income. The real problem is whether we can improve happiness or satisfaction of the people. Most people care about food safety, our social safety net and high quality education,” Liu said. “In the current situation, people feel very upset about the social environment in China.”