2011-03-06 17:00

A RELIEF FOR LOCAL GOVERNMENTS?

China's stunning economic rise in recent years, always exceeding annual targets, has been pushed by local governments' racing to boost regional GDP growth by putting huge investments in capital- and energy-intensive industries.

The annual growth rate of over nine percent in the past three decades has enabled China to take the place of Japan as the world's second largest economy after the United States.

However, that success comes with heavy costs: pollution, yawning wealth gap and corruption. Premier Wen defined the development model as "unbalanced, uncoordinated and unsustainable".

With a lower economic target, the central government intends to make it clear to local leaders that property investment and energy-intensive industries should not be key drivers of economic growth, Wang Jun said.

It also helps ease local governments' pressure on seeking high GDP growth and competing for rankings in an effort to meet the official evaluation system which places great emphasis on economic growth, he added.

The central government's decision to scale down the economic growth target is a guide to lower expectations for fast GDP increase, said Liu Zhiyan, an expert with the Chinese Academy of Social Sciences, a government think tank.

The government wants a slower growth speed in exchange for an upgrade in economic quality, he said. "It is hard to improve economic quality amid expectations of fast economic increase," he added.

However, it seems local governments do not feel comfortable with slowing regional growth. According to their five-year growth targets unveiled prior to the central government's plan, 25 provincial regions out of 31 in the Chinese mainland set double digit growth rates for the 2011-2015 period.

Local governments tend to set their goals higher than seven percent to ensure their jobs are accomplished, said Tang Shibao, a senior executive of the Guangxi Beibu Gulf Bank. He called for the central government to reduce the weighing of GDP growth in assessing local governments.

A report from the ANZ Bank said that, as history indicated, China's economy is expected to grow 9.6 percent in 2011.

FINE WITH SLOWDOWN?

Wen also announced in his government work report that the 2011 economic growth was set at around 8 percent.

This is the seventh consecutive year that the government eyes the same growth figure, which authorities feel is the minimum figure to secure employment and improve the people's living standard.

"It is necessary to maintain an appropriate pace of economic growth in order to expand employment, improve the people's well-being and consolidate and expand on our achievements in response to the global financial crisis," according to the 2011 draft plan for national economic and social development, just released by the National Development and Reform Commission (NDRC).

"As a developing nation with a huge population, China can not afford no growth or slow growth," warned Wang Yiming, deputy head of the Academy of Macroeconomic Research under the NDRC.

China should keep a "certain pace of growth", otherwise company profits, governmental fiscal revenue and employment will not be ensured, he said.

Commenting the government's target of creating 45 million new job opportunities in urban areas in the next five years, Wang Jun said that if the service industry can be substantially expanded amid economic restructuring, it will create enormous employment.

The government is also seeking growth in new areas, such as new strategic sectors, which are part of the efforts in economic restructuring, he said.

The draft 12th Five-Year Plan aims to develop new strategic industries, such as alternative energy and bio-technology to make these sector's value-added output account for eight percent of the country's GDP by 2015.