A time to address constraints
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Besides, making consumption a driver of growth would require large increases in salary, as announced in the plan, which could generate a wage-price spiral in the economy trapping policymakers in a difficult choice between rebalancing and price stability.
Additionally, the new policy framework will have to confront the challenges brought about by the new century, namely the socioeconomic implications of rapid population aging and the battle against climate change. Notwithstanding the grave consequences of aging at a relatively low level of per capita income, the issue doesn't feature prominently in the new plan. But the document is more vocal on the green agenda and builds on the solid progress achieved under the 11th Five-Year Plan (2006-2010).
China's rapid economic development has come at significant environmental cost, and rapid economic growth and high dependence on coal as an energy source has resulted in high levels of air and water pollution and rapidly rising carbon dioxide emissions.
Moreover, the prosperity brought about by the successful economic transition has prompted the acquisition of automobiles at a faster pace than infrastructure development, exacerbating these trends. The 12th Five-Year Plan sets specific green targets, but taking into account the scale of government plans to accelerate urbanization, more efforts are needed to facilitate a sustainable process for this under the framework of a low-carbon economy, including improved water and land management.
Given the depth of the envisaged reforms, the 12th Five-Year Plan is probably one of the most important plans since the foundation of the People's Republic of China. The future of China, however, will depend on reforms that transcend the scope of the current plan.
Looking back, 30 years of successful reform and opening-up has transformed China into the world's second largest economy, which allowed for a swift transition from low-income to middle-income status. Today the challenge lies in how to move up to the level of a high-income country. In pursuit of this, a more determined stance toward inclusive growth and environmental sustainability is needed to secure long-term growth and avoid the middle-income trap.
China's strong fiscal position provides ample room to finance the transition to a more balanced and consumption-based growth pattern, supported by increased public spending as intended under the new plan. In this regard, the NPC and CPPCC annual sessions present a unique opportunity for policymakers to address structural economic constraints and to allocate resources optimally for priority development needs.
Paul J. Heytens is country director of Asian Development Bank's office in China, and Yolanda Fernandez Lommen is head of the economics unit of Asian Development Bank's office in China. The views expressed here are the authors' personal, not the bank's.
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