Five-Year Plan outline 'promising'

Nicholas Lardy, a leading US expert on the Chinese economy, thinks the broad outline of China's 13th Five-Year Plan (2016-2020) is very promising.

He described the emphasis on innovation, green technology, more inclusive growth, the change of growth model and others as "highly desirable".

"The thing is how these objectives are going to be achieved," he told China Daily on Wednesday.

Lardy, a senior fellow at the Peterson Institute for International Economics, a think tank in Washington, believes that the government has to use indirect rather than direct policy instruments given the way the Chinese economy has evolved.

"And I think the challenge is what are these indirect policy instruments that will help achieve the goals," he said.

To Lardy, details are still lacking, such as how fiscal policy and regulatory policy will support these goals, but those details should become clear at the National People's Congress session next March, when China's lawmakers assemble to discuss and approve the blueprint.

China aspires to double its GDP to $17 trillion and double its per capita income to $10,000 from the 2010 level by maintaining a medium-high growth rate of an economy expected to be more balanced, inclusive and sustainable.

Lardy said the innovation aspect is "extremely important", because most of the economic growth in China in the past 35 years should be attributed to the improvement of total factor productivity, literally the use of labor and capital more efficiently.

He is not sure what kind of institutional and regulatory arrangement will support this more innovation-driven economic growth. But he believes whether the goals set could be achieved depends on how much reform will be carried out.

He is especially concerned about the State-owned enterprise sector. The SOE sector, though smaller than before, is still seeing efficiency going down. "So it's a drag on economic growth," said Lardy, author of the book Markets Over Mao: The Rise of Private Business in China.

According to China's Ministry of Finance data Lardy cited, the return on the 117 trillion yuan ($18.6 trillion) SOE assets is extremely low and has been going down for the past seven to eight years.

"If it continues to go down, it will probably not be possible to grow at 6.5 percent," said Lardy.

Vice-Minister of Finance Zhu Guangyao told a talk at Peterson Institute on Dec 1 that an average annual growth rate of 6.5 percent was required to become a $17 trillion economy by 2020.

Lardy, whom Zhu referred to as his teacher and advisor, believes such a 6.5 percent goal could have a positive effect in the sense that if you want good prospects for meeting the goal, you have to undertake reforms that will improve efficiency, particularly for the SOE sector to use the assets more efficiently.

These, according to Lardy, could include selling off assets, ownership transformation or mergers and acquisitions by high-performance firms. He also believes that there needs to be more competition by reducing the restrictions on the entry of new players into some sectors that are excessively monopolized.

"So if you do a combination of those kinds of things, then maybe you get a boost, from using this huge quantity of assets more effectively," he said.

Lardy does not buy the saying that if you want to grow 6.5 percent you have to go back to the old model of emphasizing investment and expanding credit.

He thinks that a moderate growth target should create conditions which reforms could precede, meaning that if you don't reform, you will not achieve the 6.5 percent growth.

He said that he does not know how the top leadership perceives such tradeoffs. There is a lot of language that could be interpreted as being favorable to reforms, but what will happen remains to be seen.

chenweihua@chinadailyusa.com