PLUS 33

Cover designed by Stuart WigginPhoto for front and back coverhttps://www.flickr.com/photos/zoonyzoozoodazoo/17405124421/

CHINA PLUS MAGAZINE: The 5 Year Plan

5CHINA PLUS4

5 YEAR PLAN INNOVATION

Domestic Consumption and Innovation

Observers looking over the details of the next 5-year plan are suggesting the Chinese President’s goal of main-taining growth of at least 6.5-percent

during the coming 5-years will have to rely on both innovation and domestic consumption. Following the CPC’s Central-Committee meeting, Chinese policymakers zoned in on “quality growth” as the way to double the size of China’s economy by 2020. The latest 5-year plan, which will come into effect after March, is calling on personal consump-tion to take on a greater contribution in economic growth.

Cai Jin, vice-president of China Federation of Lo-gistics and Purchasing, says steady growth in con-sumption will lay a solid foundation for the entire economy, noting that, ”Consumption helps drive economic growth, and that in turn helps improve people’s incomes. It’s beneficial to the economic cycle. It not only creates economic growth, but also helps improve livelihoods.”

It has also been suggested that the new two-child policy will also help bolster consumer spending. Chinese authorities announced towards the end of last year that the decades-old family planning policies were to be amended to allow every couple in China to have a second child if they desired.

This new policy shift will allow millions of couples to have a second child, adding to the economy through household spending on the additional mouths to feed within each family unit.

At the same time, scientific and technological inno-vation is also being adopted as a core foundation of the next 5-year plan. Large-scale scientific projects will be part of the mandate.

Wang Enge, vice president of the Chinese Acad-emy of Sciences, which is currently in charge of nearly three-quarters of the large-scale scientific projects in China, says the new focus on science makes sense for a number of reasons. “For one thing, the country’s economic development is going to need significant scientific and techno-

logical breakthroughs that can create new areas of growth. Large-scale scientific projects also promote the development of fundamental research and technical breakthroughs. But they’re also an important platform which supports practical projects as well.”

The new 5-year plan for scientific development also puts an emphasis on establishing areas along the Yangtze River to supplement existing development centres in China’s coastal area.

Mu Rongping, head of the CPC’s committee in charge of the Institute of Policy and Management, says too much reliance on China’s coastal areas is not good for large-scale development, instead urging the country to move towards the central and western parts of the Yangtze River, “From Chengdu and Chongqing to Wuhan and Zhutan to Hefei and to Nanjing. Then the central cities in these regions will play a more important role in the innovative development of the regions.”

Other measures outlined in the plans to maintain a 6 to 7 percent annual growth rate include the establishment of a Green Development Fund to promote clean produc-tion methods and sustainable growth. The introduction of a more comprehensive income tax system and stricter regulations surrounding “grey” incomes are also going to be included in the coming 5-year plan.

Innovation as the Core of Future Development

A communiqué released last year following the 5th Plenary Session of the 18th Communist Party of China Central Committee, noted that innovation would be placed at the core of

China’s development path over the next 5 years.

The Chinese government is of the belief that a number of sectors including science, technology and culture need to be made more innovative, and as a result the country will continue to encourage mass entrepreneurship in the hope that it will lead to new technology.

Zhu Jianfang, an economist with CITIC Securities, point-ed out that putting innovation into such an important position is unprecedented, “Especially a core position for China’s future development, and it might even bring all the country’s future tasks together.” For his part, re-

6 CHINA PLUS

Professor Huo Deming with Peking University says the experiences that the world’s leading industrialized countries have gone through suggest that shifting away from an ex-

port-driven model of growth is one of China’s only real options at this point.

As Professor Huo explains, “Not using investment as a driving vehicle, what else can we count on? With our expe-rience: consumption. The US, the UK as well as Japan, all those fully-grown economies, fully-developed economies, their growth depends on consumption.”

At the same time, Huo Deming suggests the Chinese government should be focusing on how to keep people working when pursuing a consumption-driven economy. “When we want to have a consumption-driven economy, we are really saying that more jobs and more employment will help drive the economy. How to create more jobs, how to create more salaries, so on and so forth.... the interpretation is that, the translation is that, it does not necessarily imply more investment.”

The Chinese government is maintaining plans to create 10-million new jobs annually over the coming 5-year plan. This is up from the 9-million target in the previous Five-year Plan. Many observers are suggesting the expanded employ-ment goal is going to need a wide range of new social poli-cies. Jerome Booth, chair of London-based investment firm New Spatra Limited, is among those calling on the Chinese government to do more to improve social security.

Booth told China Plus, “I think effort is needed to get people to consume more as well. And that involves giving them a sense of security in their old age. We are trying to reduce the precautionary motive to save. I mean, that’s a big task that involves changing people’s perception of what they may need and what they might rely on later in life.”

The 13th Five-Year Plan is the first to be produced under President Xi Jinping’s leadership. Growth, rebalancing, up-grading, liberalization and the environment have emerged as the overriding themes. An official announcement won’t be made until the plan is officially ratified at the annual session of the National People’s Congress, the nation’s top legislature, this coming March.

nowned economist Ma Guangyuan believes that innovation plays a crucial role in China’s future development, especially in the task of accom-plishing the goal of building a so-called “society of moderate prosperity in all respects” by 2020.

As Ma explained to China Plus, “Innovation will be indispensable for the Chinese economy’s fur-ther development, and the emphasis will become much lower on previous measures such as entire-ly relying on material factors, human resources or exports. Those countries which have been able to avoid the middle class income trap also prove that innovation is necessary after going through a relatively rapid development period.”

Ma notes that over the coming five years a system on public policies supporting and encouraging innovation needs to be formed. The government has already taken a series of measures to promote innovation, including an emphasis on the better allocation of resourc-es including labor, capital, land, technology and management. A range of measures for emerging businesses such as financial support, supporting infrastructure and administrative assistance have also been announced.

Zhu Jianfang also notes that innovation will not only influence China’s economic and social development, but also bring benefits for a series of industries. “Institutional and technological innovation will stimulate high-end manufactur-ing to develop on a higher level.

Service industries, such as medical care and elderly care, will also gain greater scope for development, since innovation will bring insti-tutional changes on those industries.” Statistics reveal that over 3.1 million new companies were established in China from January to September, while the high-tech sector reported a 10.4-percent growth in value-added output during the same period.

(Innovation) might even bring all (of)

the country’s future tasks together

创新 [chuàng xīn]

Innovate. Bring forth new ideas. Blaze new trails.

5 YEAR PLAN INNOVATION

7

China Plus spoke to Professor Laura Tyson, chair of the US president’s Council of Economic Advisers during the Clinton Administration, at the 2nd Understanding China Conference, for her insights on the US views of the Chinese economy for 2015-2016 and her take on the coming Five Year Plan.

In 2013, the Third Plenum of the 18th CPC Central Com-mittee initiated China’s en-deavour to transform its econ-

omy, aiming to optimise the way economic growth is to be achieved. Two years have passed, and this transition is still ongoing in China, while economic development has

seen a significant slowdown. In an effort to continue its eco-

nomic transformation, China’s 13th Five Year Plan, the blueprint for the next five years, has focussed on innova-tion as being one of the most emphasised goals for China.

Views on the Chinese Economy

8 9CHINA PLUS

US VIEW5 YEAR PLAN

What would the coming Five Year Plan bring to the US?

The plan embraces a more balanced approach to economic development and growth. For example, emphasis on climate, and already we can see that there has been an opportunity for the US and China to negotiate an agreement on climate, which is actual-ly becoming an incentive for other countries to go to the Paris Summit to really make some progress.

So, that’s a great opportunity, which China, by embracing a green vision for its next 5 year plan, has been able to unlock a set of commitments on climate, which I think are going to unlock commit-ments around the world. So, that’s just an example. A second area would be in the area of services, where we know that this new 5 year plan is going to continue to emphasise the movement of the Chinese economy to services. And I think there are lots of opportunities for American firms to provide services to Chinese customers, so that’s a whole new set of market opportunities.

How is this transformation viewed by the US?

There isn’t a single US voice on anything. I would say that in my communities that I operate in, busi-nesses, financial services industries, economists who study China, that the directions laid out in the new 5 year plan are applauded as the correct directions for the health of the Chinese economy and for the global economy.

So, to have a sustainable development strategy where you’re emphasising the green nature of development; to have a strategy which is more labour intensive and less energy intensive, because services are more labour intensive and less energy intensive – that’s also a positive.

(With regard to) China’s decision to move towards consumption and away from investment, econo-mists have looked for a long time at an investment rate of 50 percent of GDP, and said that that kind of investment rate is not sustainable and what it means is that there is going to be a lot of invest-ment in a lot of capacity, which may prove to be excess capacity.

And so, a more efficient allocation of investment resources is one that is actually going to bring down the investment rate. So all of those measures, (for) people who think about China’s economy from the perspective of the American business community, or American economists or American financial service institutions, those are all recognised as the right directional changes to make.

What measures would you suggest for China to achieve this transformation successfully?

First of all, one word that was mentioned a lot in the dis-cussions here is the importance of the role of innovation. I think that innovating in every aspect of life; innovating to have more small scale enterprises that are privately owned and operated; innovating to have new approaches to energy efficiency. So, part of the way to try to achieve these goals is to try to find new technologies or new ways of organising to achieve a goal in a more efficient way.

So, I want to start with that; encouraging innovation. Because (China does) have great universities; (China has) a lot of support for science and technology; (China has) a very talented population in terms of science, technology, engineering and math; (China has) a lot of the basic ingredients which econo-mists have identified as important for encouraging innovation.

And so, adopting innovation as a major goal when you have laid the foundations for strong innovation is a very posi-tive combination. It is a difficult transition and whether it’s possible to grow over the next 5 years at an average rate of 6.5 percent, which I think is the rate that has been adopted as a goal, I think that’s questionable. It’s questionable. But at the heart of the plan is this transition from investment to consumption and from manufacturing to services.

Those transitions are complicated because, for example in moving from manufacturing to services, it is possible that some of the capacity that has been developed in manufac-turing is going to prove to be excessive. If you have to scale that back, or close it down, it’s very hard to grow fast if you’re closing down something and building up something else; it’s just harder. So, I think the main concern is can you get that 6.5 percent, and what’s the motivation of setting a growth target itself when you have all these other targets? Will it all be consistent?

With regard to manufacturing, China wants to move up the value chain; what can it do to achieve this goal?

I think actually it’s those structural changes which will continue to see manufacturing as a smaller share of GDP as services increase as a share of GDP. I think actually that China is set on reducing manufacturing as a share of GDP. I think for China that’s exactly right because the service sec-tor, compared to the level of income, the level of per capita income, the demands of a consuming population, the level of services is not high enough.

I think this is a valuable goal. I understand that China is not trying to cut manufacturing; it’s trying to, over time, reduce the share of manufacturing as a share of GDP. What I mentioned was the problem that might exist that given the capacity in things like cement, steel, infrastructure and construction capabilities that have been built up during a big in-vestment boom, that capacity might prove in some cases to be excessive; not necessary.

That’s the part that would have to be scaled back, and that’s where people look at some of the very large SOEs and say some of that capacity may never be fully utilised again; it may never have been fully utilised. How do you deal with reducing that over time?

Li Keqiang stressed importance of mass entrepre-neurship. How can China have its own Steve Jobs and Mark Zuckerberg?

I’d like to make a distinction between Steve Jobs, Mark Zuckerberg and a few very large, success-ful IT firms, and mass entrepreneurship, because they’re not the same thing. Most entrepreneurial facilities around the world are relatively small com-panies that do not become parts of global man-ufacturing and multinational companies, and by the way, in both of those cases and in every single other one that you’d likely mention, the govern-ment played a critically important role because the basic science that went into these innovations and the talent that went into these innovations basically came out of government support for education and basic science and research.

The combination of those things with people who have entrepreneurial capabilities and financing; the other part of this we have to think about here is financing because it is the case that when the professor and two students at Stanford University, all of them supported by the Nation-al Science Foundation, came up with the idea for Google, they had to get support from the venture capital commu-nity to make that happen. So, you have all kinds of ingre-dients that have to be available to get a story like that.

And that’s why I think China is in good circumstances to pursue an innovation entrepreneurial approach now because it has been supporting basic science and it has been sup-porting university education. I don’t know, and I think this is a question for China to answer, is how it finances entre-preneurial ventures. The traditional role of bank financing is not the way that entrepreneurial ventures get financed.

In the US, it starts oftentimes with family and friends and personal savings and then if you actually have an idea that can capture the interest of angel investors… then you move on to venture capital, then you move on to the pub-lic capital market. You don’t move to the banking system; you move to selling equity or selling debt. So, the ability to support an entrepreneurial culture is tied up with capital market reforms, financial market reforms, which I know China is putting in place but one of the things to think about is how you wed the basic idea, with the tal-ent, with the finance; all of those things are necessary.

I want to make the distinction that I started with, which is a lot of entrepreneurial activity ends up being small and maybe perhaps medium sized, but certainly not the kind of name marquee brands of Apple or Facebook that we’re

Views on the Chinese Economy:Professor Laura Tyson, chair of the US president’s Council of Economic Advisers during the Clinton Administration

10 11CHINA PLUS

5 YEAR PLAN

11

US VIEW

thinking of here. Small, medium sized companies; that might be ten people, that might be fifty people, that might be a hundred people. It’s not going to be part of a major global MNC. Those are the forms of many, many entrepreneurial ventures and I think that there is lot of room in the service sector for such ventures.

China not part of TPP, US hasn’t joined AIIB. Is this phenomena normal?

Well, I certainly support the creation of the AIIB. I think it is a complement to existing institutions. I think the mobilisation of a significant amount of additional funding for infrastructure is very valu-able to the global community so I would have rec-ommended, had I been asked, that the US actually participate in the AIIB. I think a lot of American economists feel like that would be the right thing to do. TPP is complicated by the fact that economists by and large live by the view that the broader the trade agreement the better, because you want as open a system as possible with as large a number of participants so that you actually get open trading and you don’t divert trade to the preferential part-ners within an agreement and partners who are out of the agreement are diverted away from.

I think ideally what most economists would like to see is that TPP is a stepping stone to a broader trade agreement. The ideal would be, of course, to have a truly multilateral agreement. If there is going to be a regional agreement because it is impossible to get a truly multilateral agreement extension; we had one obviously with Doha – we had an effort at Doha but it didn’t move forward.

An Asia regional agreement is a beneficial step and maybe what you would say is that TPP is one step towards an Asian regional agreement which would be another step towards a true multilateral agreement. If you look at history, APEC has played that role; it played that role in the 1990s by initiating a free trade agreement in the information technology area, which was then adopted by a much larger number of companies. So, what I’d like to see is TPP as a step towards a broader agreement with China.

China’s GDP growth rate in first 3 quarters, 6.9%

I certainly don’t think 6.9% is a hard landing. A slowing of China’s economy, it seems to me, was something to be expected. It doesn’t take away at all from the fact that for nearly three decades the growth rate was approximately 10%. That’s a historical accomplishment that is unparalleled; we applaud that.

But the world economy itself, export markets are slower; China is correctly having to scale back its investment effort because its investment effort was building capacity for a world economy that was growing faster. If the world economy was growing more slowly, then the investment effort of China to sell to those markets actually needs to be scaled back.

To some extent, the China slowdown is coming from the rest of the world. Of course, China slowing down in turn reinforces the slowdown of the rest of the world; it is to be expected. The other reason to be expected for China to slow down is demog-raphy, which we will see playing out in terms of its potential growth rate over time. Most economists were not surprised that China was slowing down and I think most economists would say, if you think about things like employment generation, it has continued to be strong in China. Wages have continued to grow in China. Personal household incomes are growing in China. So, you look at indicators of economic health and you’d say this isn’t a hard landing.

You have to think about structural issues that are challenges. So, we know that there has been a rapid increase in debt compared to GDP. So, there needs to be an effort of bringing debt under control and gradually bringing it down. So that’s a structural problem. There needs to be an increase in con-sumption as a share of GDP and reduction of investment; that’s a structural problem. All of those things are difficult and what I would say is look at progress on those things rather than a growth rate of 9 going to a growth rate of 6.9.

It’s not a hard landing – it’s a significant slowdown. But if this transition from manufacturing to services is going on, and from investment and consumption is going on, and less depen-dence on exports is going on, and employment is continuing to grow, and wages are healthy, that a “hard-landing” doesn’t make any sense as a description of what is happening.

China Plus Magazine spoke to Liu Zhiqin, Senior Fellow of Chongyang Institute for Financial Stud-ies, Renmin University China, as he provided a broad perspective on China’s 13th Five Year Plan.

Every five years, the Chinese government issues its blueprint for the coming half decade, and every five years these blueprints are analysed and applauded as important steps towards

China’s overall development. Undoubdtedly, these plans contribute to China’s economic prowess but many Chinese observers, especially within the media, have claimed that the 13th Five Year Plan is the most important plan ever created in the sense that the gov-ernment must meet the targets it is setting for itself.

Liu Zhiqin of the Chongyang Institute for Fi-nancial Studies at Renmin University certainly doesn’t downplay the significance of China’s coming Five Year Plan, claiming that it is the “most important Five Year Plan in our history.” But this isn’t just a sound bite, as Liu explains. The 13th Five Year Plan, according to Liu, is a method by which to achieve the often mentioned Chinese Dream, a concept which is more ab-stract than it is concrete in terms of definition.

But Liu points out that the real Chinese Dream is not a notion of the middle classes, namely being able to buy expensive designer goods, but rather the relief of poverty alongside a moderately wealthy society. “This is the real dream of the people. No matter what measures are taken for economic reform, the people have to share the dividends; the positive results.” It is for this reason that Liu con-siders the plan to be the most important, because the pressure is on to deliver.

With regard to progress markers, Liu notes that, “GDP is quite important for economic, statistical research or study. But for economic practice in China, with such a huge population, GDP is not as important as it was before to measure the wellness of the Chinese achievements in the economy. I think the most specific targets that should be set out are real incomes; how to narrow the income gap; and how to ensure an increase in people’s confidence in social stability.”

Meeting the growing demands of its people is something that China’s central authorities are constantly grappling with, alongside a host of other challenges, and Liu points out that “public services (in China) are not as comfortable as the people wish.” But there is a question of whether the economy will be big enough over the next 3 to 5 years to support the growing demands of welfare and healthcare.

Liu advocates an active policy approach by the gov-ernment, which could mean having to do things which could be unpopular initially (such as raising the age of retirement), as opposed to implementing passive, negative policies that simply try to safe-guard the growth rate in the short term.

But aside from sharing dividends and narrowing the gap between the rich and poor, there are a number of other pressing issues that the govern-ment faces, which have been well documented in both foreign and domestic media. One topic which has led to an increasing number of col-umn inches over the past several years is that of China’s ageing population.

But Liu pours cold water over this by stating, “The ageing of the population is not a big problem. The problem is the education of the population. Only education can help to solve all the problems we meet, especially in (relation to) population problems. If we have no education investment in young people, the young will grow up in a very short time to replace the ageing (population).” Liu Zhiqin also posits that China is facing another challenge which has so far gone unnoticed in relation to the internet industry’s impact on labour. “The internet industry devel-ops so fast that (it) can replace or even change the labour population structure in China. That means, no matter young or old, (both groups) can work together with the help of the internet,” Liu explains.

This is positive in the sense that it provides more opportuni-ties for individuals to gain employment and expand entre-preneurial activities but more investment and understand-ing is needed within this area to fully unlock the potential of its impact on the country’s labour structure. Over the next five years, it is understood that China’s economy will move towards a more market based orientation, though govern-ment control in certain areas is likely to persist though this will be addressed and modified according to the 13th Five Year Plan.

However, in relation to a market based economy Liu told China Plus, “I think during the next five years, the govern-ment will always focus on the importance of the direction of the government’s role in the market system. Actually, the market mechanism should be further modified; fur-ther qualified in China, because there is much confusion amongst the government regarding which way is best for China. This is always changeable and not always the same. I hope that the central government will give more room for the market system and give more authority to the enterpris-es to decide what they should do in the market.”

The ageing of the popula-tion is not a big problem. The problem is the educa-

tion of the population. Only education can help to solve all the problems we meet, especially in (relation to)

population problems.

The Broad Perspective

12 13CHINA PLUS

Further Focuses: Poverty Reduction

Every five years, China lays out a new series of centrally-planned social and economic development initiatives for the country to follow. The 13th of its

kind, covering the 2016-2020 period will be ratified at the annual session of the National People’s Congress, the nation’s top legislature, this coming March.

It is understood that the new plan will maintain economic development as its central focus and introduce a more people-orientated approach. The plan is also expected to prioritise poverty reduction, pledging to lift all Chinese people out of poverty by 2020; a monumental task which some argue is impossible when one accounts for the differing cost of living, especially in a rapidly transforming country like China.

To explore this issue further, China Plus maga-zine spoke to Thomas Pogge, Leitner Professor of Philosophy and International Affairs at Yale University about China’s poverty reduction goals in its 13th Five Year Plan.

International Context: A change in the World Bank’s poverty line.

The new poverty line is denominated in a different dollar; the previous line was US$ 1.25 in 2005 currency and the new poverty line is US$ 1.90 in 2011 currency. The World Bank has actually tried to preserve the purchasing power of the poverty line and they came up by looking at all the different poor countries, they thought that the accurate equivalent to US$ 1.25 in 2005 currency would be US$ 1.88 and then they rounded it up to US$ 1.90. So, the number of poor people has actually not gone up significantly, it’s just nominally higher but in real terms, the value is pretty much the same in the average poor country.

China Plus speaks to Thomas Pogge, Leitner Professor of Philosophy and International Affairs at Yale University

China’s poverty line is set at 2,300 RMB (US$ 350) per annum. Is this accurate?

It’s not really that the poverty line can be accurate or inac-curate. You can put the poverty line wherever you want and then you can see how many people fall below it. A poverty line of 2,300 RMB (US$ 350) per year is very close to the international poverty line and you might say that given Chi-na’s fantastic economic growth over the last 30 years, China could be a little bit more ambitious.

It’s certainly the case that living in China, 2,300 RMB is not a lot of money. People who have that amount per capita are still quite poor and certainly the poverty problem isn’t solved merely because everybody is above 2,300 RMB. On the other hand of course, we do want to focus attention on the poorest of the poor, those who live below that very low line. And so, I think it is a wonderful ambition for China to get everybody above that line at least by 2020.

Nobel Prize Winner, Angus Deaton suggests there is a problem with the World Bank’s method in terms of reliability. Is drawing a poverty line enough to raise awareness of the problem?

I think it’s not enough. There are problems, certainly, with the measurement. Angus Deaton is a good friend of mine and I have discussed this for many, many years. Aside from these technical problems about conversion with the vari-ous prices across currencies, it is also the case that people can generally not really understand what that poverty line means. They hear US$ 1.25 per person per day, or US$ 1.90 per person per day, or 2,300 RMB (US$ 350) per person per year, and people immediately think, wow this is a very small amount; but they cannot really relate to that amount very well.

And often at least in the richer countries, (people might think) this US$ 1.25 is nothing here in the United States, but maybe it’s more in India, or more in China, so it’s not as low as it seems to me. So, I think it would be better to focus on the real life aspects of poverty; what it really means in terms of food, in terms of sanitation, medical care and so on, so that people could imagine what it’s like to live at such a very low level of income.

Can the measurement of poverty be improved?

Doing it in terms of purchasing power parity is a bad idea because when you compare the purchasing power of RMB with US dollars for example, you do that against the back-ground of all the prices of all the goods and services that are consumed worldwide. And so the prices of aeroplanes, and real estate, and cars, and computers, all these things figure into the comparison between dollars and RMB. Of course, the prices of all these things are totally irrelevant to how well-off the poor are. And so, PPP is quite misleading with regard to the real purchasing power of the various curren-cies. What you should do instead I think is focus on the needs of people; for example, the need for food, the need for shelter, for clothing, for sanitation.

And you should then say how much money I need in a par-ticular location in order to meet the basic needs of a human being. That would be a much more accurate way of measur-ing poverty and comparing across countries.

The issue of inequality in China

There are two things that are driving progress against pover-ty. One thing is economic growth and the other is inequality. We could easily eradicate poverty today both in China and the world if we didn’t have so much inequality.

Inequality has been rising in almost all countries and it has been rising worldwide, and that has led to the share that goes to the poor shrinking. So, the poor benefit from the increase in the pie in the national product, but they are also hurt by the fact that their own share of the global and na-tional product is shrinking. This is very obvious in China.

After the Deng Xiaoping reforms, China has had fantastic economic growth, which has been the envy of the world, but inequality has also increased. So, the share that goes to the bottom 30-40% of the Chinese population has been shrinking and shrinking. So, the poor have still benefitted tremendously; China has still had great poverty eradication. But the poor are still with us simply because there has been a significant increase in inequality. That is what we need to reverse in the next 5 to 15 years.

China’s poverty line of 2,300 RMBequates to 6.3 yuan per day, which amounts to less that one US dollar.

Inequality has been rising in almost all

countries and it has been rising worldwide

I think it would be better to focus on the real life aspects

of poverty; what it really means in terms of food, in terms of

sanitation, medical care

5 YEAR PLAN POVERTY

14 15CHINA PLUS

5 YEAR PLAN

15

GLOBAL

As China pursues development over the next five years, the catchphrase is reform, or deepened reform, the theme of the 13th Five Year Plan. Deepened reform means

comprehensive and fundamental changes in both macro and micro dimensions, including the growth model, corporate management, the tax system, social security, and above all, better governance. China is, however, facing downward pressure both at home and globally. The most recent five-year blueprint highlights a shift from investment-driven to con-sumption-led growth, slowing down slightly, but more sustainable and healthier.

The 13th Five Year Plan is a logical devel-opment from the 12th. The key lies in the relationship between the investment and consumption really; it’s all about which one is more appropriate at the time. So, this raises a huge number of questions about priorities more than anything else.

I think if we look back historically at what the Chinese priorities have been, they have been broadly correct because you have to build the infrastructure which is necessary. It’s important I think for commentators outside of China and inside China to understand that the Chinese pattern of growth has not been the norm for everywhere else.

The export led growth was crucial in the first place and made possible by the unique characteristics of the global economy and then China deciding to enter that global economy, and the amazing pro-ductivity gains made by Chinese manufacturers, and to a certain extent the government for making sure that these exports were promoted.

So, the income from exports coming back into the country is taken through the taxation struc-ture and is actually used for investment. So, the triangular relationship between exports, invest-ment and consumption is a continuing one. We have now actually reached the point at which consumption probably does need to grow.

What’s the implication of this Chinese focus on consumption for the world economy?

It becomes very important in terms of the sustainability of growth in the Chinese econo-my. Export led models, to a large extent, when a country decides to focus upon exports as providing the principal funds for investment and growth, then you become exposed to decisions made by others, you become exposed to politi-cal changes for example what is taking place in the Middle East at the moment, terrorism, the uncertainty in civil war in Syria, all those kinds of things, which can upset or interrupt global supply chains and transportation.

So, relying upon exports is relying upon stability and global demand, which are not necessarily under your control. A consumption led model of growth brings in more of your domestic popula-tion in whichever country you’re talking about, and this becomes very important in China; a key part of the social inclusion and economic inclu-sion part of the 13th Five Year Plan.

Is consumption more reliable for spurring economic growth within China?

That is a key question because the one thing that is necessary within the Chinese economy is stability and predictability and sustainability. Whether it is more reliable depends upon a whole host of other factors. The new Five Year Plan indicates a change in focus in economic thinking. So, the 10th, 11th and 12th Five Year Plans were very clear manifestations of demand management with a touch of monetary thrown in as well.

What we see in the new Five Year Plan is a move to what we call Supply Side economic management where the conditions of maximising the supply, prices, availability of logistics, trans-portation etcetera becomes the top priority. The key to all this is not that the other elements are going to be downgraded or less important, I think it is about the focus of achieving levels of economic efficiency within the Chinese economy that enable consumption to go up.

Having said that, it’s really important not to lose sight of the fact that actually it’s perhaps not consumption that we should be talking about, it’s household income. Household income in China has been growing very fast, at quite astonishing levels actually; we’re talking about lower estimates of between 5 and 6 trillion dollars a year and this itself is a phenomenal increase over the past 30 years which is unheard of in historical terms.

Is less attention being paid to income increase as supply side reform becomes a top priority?

I think that’s probably right. I think the income increase will continue with the success of growth. Even growth at lower levels, which is stated as the new normal, is growth that many countries in the world would love to have. This will generate an increase in levels of income. That coupled with an intergenerational change, where younger people who are earning are showing a much greater willingness to consume, I think consumption in one sense will actually take care of itself. Therefore, the focus of the Five Year Plan on supply side becomes crucial; there’s no point in having large levels of what economists call effective demand if the supply within China cannot meet it or if that’s completely diverted into imports.

Is the change of focus good news for the global economy?

I think it is good news for a number of reasons. Number one, it shows that the focus of the Chines people and the Chinese govern-ment is about growth continuing. A growing economy in China, following the pattern of the past 30 years, is good for everyone. Secondly, it is in line with the expectations of most of the Chinese people I would think. Chinese people read domestically, and in foreign press, about the success of their economy and that has to be reflected in their day-to-day lives and has to be shared. The new Five Year Plan clearly shows this and covers this. But unless the gains from these amazing growth figures are shared throughout the society, then problems in terms of stability, expectations, etc., are generated and this happens in any social economic system; it is not unique to China in that sense.

In an effort to see what China might be able to learn from the rest of the world and what its transformation will mean globally China Plus spoke to financial consultant Rodger Tooze, for-mer professor of London School of Economics.

China’s 13th Five Year Plan says contribution rate of consumption to the economy should increase by large margin. The 12th Five Year Plan proposed structural reforms should be the focus and we should promote co-ordinated development of consumption, investment and export. What has changed?

The Five Year Plan and its Global Implications

16 17CHINA PLUS 17

SOEs

16

5 YEAR PLAN

16 CHINA

They are still the backbone of the economy, yet some State Owned Enterprises (SOEs) are losing out in market competition, or failing to cater for public needs. They have undergone reforms but it is widely agreed that future reforms must go deeper.  China is now mulling over a new round of SOE reforms. Measures include introducing more private capital in areas traditionally dominated by the state sector, and securing state assets so that the market can play a greater role. President Xi Jinping has held several meetings on the future direction of SOE reforms, and stressed the importance of avoiding the erosion of state assets and increasing their value in public service.

China Plus Magazine examines the curious case of China’s SOEs by talking to Professor Yao Shujie, Head of School of Contemporary Chinese Studies, University of Nottingham in the UK.

In regard to yet another round of SOE reform, how would you assess the goals of the reforms this time?

SOE reform has been a fairly long journey for China. I think we have gone through almost four decades of continuous reform and now we’ve come to a stage where the Chinese macro-economic system is very different from before. The share of SOEs in the national economy in terms of employ-ment, in terms of contribution to production and GDP, it has been continually declining.

However, the role of SOEs in the national economy is still fairly significant; they are still fairly import-ant. The next question regarding SOE reform is how to improve efficiency; how to define the op-timum size of SOEs in the national economy; and how to incentivise the kinds of management and also optimise the government structure of SOEs.

With regard to improving efficiency amongst SOEs, one approach has been to encourage the participation of private players in areas previous-ly dominated by these state owned industry giants.

However, similar efforts in the past have encountered for-midable hurdles. What is the liklihood of a breakthrough in the future?

For SOEs, working with the private sector is not a new thing. That’s why now we have started to break down the concept of monopoly power, which is a clear criticism by people who promote free markets. All the SOEs under the control of the central government are fairly large SOEs and many of them occupy the so-called monopoly industries, for example telecommunications, aviation, the railway system. Those kinds of things, even in the west, pose a very, very difficult issue.

First of all, if you try to privatise those companies, sub-jecting them to the market forces, the consumer would lose out and the state would lose out. So it would have to require some regulatory framework which could control and contain the kinds of monopoly behaviour of the private sector. If you don’t have this effective regulatory system then there is a fairly clear argument that state monopoly industries are better if put in the hands of the state rather than the private sector.

So, we have a dilemma here, SOEs on the one hand carry out a function which is supposedly maintaining fairness for the consumer and it tries to protect the consumer from the excessive exploitation of the private sector. However, the SOE sector is relatively inefficient com-pared to the private sector, so how do we combine the efficiency of the private sector with monopoly indus-tries whilst preventing so-called abnormal profits which are against the interests of the consumer; this is a fairly difficult choice. So what the government is trying to do is present some kind of PPP, public private partnership.

For example, if there was an investment project which had some potential for monopoly then you allow a cer-tain amount of private sector (investment/involvement), which means that you would introduce some benefits of the private sector, efficiency, or more plentiful capital, into the investment sector, but on the other hand you don’t want the private sector to have total control or ma-jority control of those projects. But then we have another issue, how to go about managing this PPP.

Examining China’s SOEsProfessor Yao Shujie, Head of School of Contemporary Chinese Studies, Univer-sity of Nottingham discusses SOE reform and Private Public Partnerships.

The SOE sector is relatively inefficient compared to the

private sector

18 19CHINA PLUS

LININ

G

STR

EA

M

I think Li Keqiang has a very clear idea; Li Keqiang has encouraged under his leadership private par-ticipation in many areas by reducing the number of regulations and restrictions by the State Coun-cil and also the provincial governments. We can see that these kinds of processes are continuing processes, except that under the new normal the central government has given a stronger push to allow the private sector to get into different areas. For instance, in the health sector, in hospitals, private clinics and private hospitals are everywhere in the main cities.

Of course, there are criticisms over how they may charge excessively, but the population is huge and people’s demand for healthcare is increasing and is more important and it is very, very difficult for the state to reach this rising demand. So, the state allows private clinics to open and serve the people in mega cities and towns and this will also be a future development in the next 5 year plan there will be some fairly clear policies to encourage not only PPP for healthcare but also purely private healthcare systems will be encouraged to a great extent. Infrastructure like waste water treatment or underground railway systems, almost every city has introduced private capital.

Even the so-called pure state enterprises, they are listed on the stock market, so indirectly their cap-ital comes from the private sector and some of the money comes from private investors or individual investors. The methods of introducing competition, subjecting the SOEs to market forces, represents an all-round way of reform; it’s not just one-way or a simple method of reform, there is lots of reform effort in between.

As long as the listed company has the majority share, basically they are allowed to raise private capital even foreign capital in to the market. These kinds of listed companies would be subjected to market performance, although in the last few months we’ve seen some fairly undesirable stock market performance partly due to corruption, partly due to inexperience, and partly due to the psychology of the investor which to some extent is not quite rational.

But this process will continue, the irrational element will start to diminish and then the state would have more and more control on the process of getting the private sector to participate. Not just direct investment, but portfolio investment. Not just for traditional competitive industries like manufacturing or agriculture, but more and more so (promoting participation) in the sectors which are largely dominated by the state.

Streamlining the government and trans-forming its functions are the consensus at a time when China is determined to continue on the path of market-oriented

reform.  But how can China make sure these promises are more than just lip service? For answers to this question and more China Plus spoke to two academics specialised in the fields of public policy and Chinese politics.

First, China Plus presents a conversation with Dr. Mei Ciqi, Associate Professor at the School of Public Policy & Manage-ment, Tsinghua University in Beijing.

The official proposal for the 13th Five Year Plan states, “Transformation of the governmental function is the focal point of deepening ad-ministrative reform.” With this in mind, what should be achieved over the next 5 years?

So the term of “transformation of governmental function” actually appeared in China’s 9th Five Year Plan, 20 years ago. We saw a different focus at a dif-ferent time. So, at first it was actually relatively easy, in the 9th and 10th Five Year Plans the focal point was separating different economic functions from the government, featuring especially the large scale denationalisation or the so-called “grasping the big, letting go of the small” SOE reforms.

And also later, we can see a search for a new identity of government functions, like “service government”, “accountable government” and “rule of law government” all appear in this pe-riod. We see quite a difference in this 13th Five Year Plan, it distinguishes itself by implementing the innovative idea of letting markets play the decisive role in resource allocation.

If it is successful, we will probably not only see a small government with less intervention in the market but we will also see a quality government with a better capacity for market regulation and public service delivery.

China’s economy has entered the so-called “new normal.” In this context, what is the importance of letting the market play a decisive role?

I cannot provide an easy answer to this but there might be two important things that we should do. Number one is probably government efficiency. Recently you might have noticed a World Bank survey on the business environments of the countries around the world; China is ranked 84th globally and after checking the data we found that the prob-lem actually appears in two directions.

The number one direction, we saw that government effi-ciency is still relatively low, for example Chinese mainland companies report on average that it takes 31.4 days to start a new business. This number is just 5 days in the United States and 10 days in Taiwan. So I think to increase government efficiency is the current government’s primary goal.

By simplifying the unnecessary procedures and incorpo-rating more internet technology we hope that government efficiency can be improved. The other (issue) in the current administrative system is related to monopoly, largely inher-ited from previous state owned enterprise (SOE) reforms.

For example, in the same survey that I just mentioned, I was quite astonished by the time required to connect to electrici-ty in China. So this number is 143 days for Chinese busi-nesses; American businesses on average just need 89 days to do that. In Taiwan this number is just 22 days. So, I think more market reform is clearly needed here.

China’s State Council has reportedly given up a large pro-portion of its administrative review and approval powers since the new leadership came into office in 2013. Premier Li Keqiang said the real effect of this statistical achieve-ment still cannot meet people’s expectations or the need for social and economic development. Why is there a gap between statistical level and actual effect?

I totally agree with the Premier’s assessment of the current situation. Frankly speaking, if we take the face value, we have probably reduced more administrative powers than we actually have. In order to explain why we have this kind of gap, firstly we definitely saw the cunning behaviour of local governments in implementing reformative measures; they took discounts by themselves in implementing these measures.

5 YEAR PLAN REFORM

20 21CHINA PLUS

FAT

TRIM

MIN

G

5 YEAR PLAN REFORM

But we should also probably give sympathy to the local governments because China heavily re-lies on the mandate system to promote economic growth and social stability. This kind of mandate system basically holds the local governments to unlimited responsibility. So, the more responsi-bility they have, the more likely they want more power; more regulatory power to make sure that things are going smoothly and peacefully in their own jurisdictions.

Let me give a quick example, we have a very ambi-tious energy intensity reduction program, and by doing that the governments have a definite goal of provide a better living environment for the people. But at the same time, when you need this kind of regulation it means that local governments must have to hold some administrative power to make sure they implement the mandates.

So, I think this is quite a managerial dilemma, that is you want them to be able to implement the mandate, on the other hand the central govern-ment is now revoking more power from the local government. So, I think the central government probably needs to strike a balance between giving them more policy burden and revoking more of their administrative powers.

I think if we just blame the local governments, then this might be a simplistic view. If we look at the system in general, then we will see that the central government probably needs to step up more to help local governments really solve the problem instead of giving the local governments policy burden.

What kind of measures should the central govern-ment offer in terms of helping local governments?

For instance public service delivery. Nowadays, the central government mostly relies on the local government to carry out public service deliv-ery. For some public service delivery, I think the government should step up more to help the local governments instead of just giving them the money and giving them the burden and let the local gov-ernments do it.

In terms of providing public goods, the gov-ernments seems to have realised that more non-governmental or social forces should be included in this cause. Since 2014, we’ve seen many supportive policies issued towards the de-velopment of public private partnerships (PPP), but so far it seems the reaction from the market has been very lukewarm; not so many business people are interested. What needs to be changed if the PPP model is to flourish?

The number one most important thing in this change I would say is the confidence from businesses in the gov-ernment. I think the relation between Chinese businesses and the state is quite complicated. So, past experiences have taught China’s companies, private or state owned alike, to conduct their own business on the government instead of with the government.

By “on the government” I refer to the unequal relations between government and business. In many ways, business-es are at the mercy of aggressive local governments. By with the government, I refer to the equal status between the local government and businesses before the law. Without solving this problem of the equal status between businesses and the government, it’s very hard for businesses to trust the govern-ment to conduct these PPP programs.

The Chinese authorities have tried to promote the concept of the rule of law over the past year. What is the role of the law in administrative reform?

The rule of law actually means two things; protection and reg-ulation. These are two sides of one coin. We have observed that the pragmatic reform in China has helped form a governing style featuring many informal institutions. In many ways it is the norm; official’s promises, official’s mandates or even person-al relations help form China’s business environment.

Such an informal environment has proven to be very successful in the past but being successful in the past is one thing. Being sustainable in the future is another. I think the rule of law in the next step should replace many of the infor-mal rules governing our market and our society. This is my definition of the rule of law in the future administrative reform.

How can we define what kind of rules are informal and what kind of rules are governed by law?

In the past, we have used a lot of norms, like “yesterday we did it, so today we are going to carry out the business in the same way.” Or sometimes, our official’s promis-es are more important or more decisive than our law. I think if we want to let the market play the decisive role in resource allocation then we must make sure that a sound legal system accompanies the market.

Administrative reform has been going on for 3 decades and China is constantly switching its stance between govern-ment streamlining and expansion. Why is this?

I would rather not call this a surprise or say that it’s a strange phenomenon. The German economist Adolph Wagner would say that government expansion is a law. But at the same time, I’ve found out that a more important problem is actually the functions of the government. So, in the future I believe that our goal should be twofold: small government probably is good but even more important than that is that it should be a small and quality government.

China Plus now presents a conversation with Dr. Wang Zhengxu, Associate Professor of Contemporary Chinese

Studies and Politics, at the University of Nottingham in the UK.

What is the necessity for further reform?

In terms of administration reform, I think there are three areas that the government needs to work on. One is the structure, because the economy and the society have changed so much compared to the 1980s and 1990s. The Chinese government structure was set up in the 1950s and basically after the major round of reforms in 1998 under Zhu Ronji, the Premier, not much change has happened. So, (China) does need to remove some agencies or units in the govern-ment structure and at the same time enhance and expand other units and other agencies.

For example, I think in the energy sector, China still doesn’t have a Ministry of Energy. It does have a Bureau of Energy under the National Development and Reform Commission (NDRC); that’s a very small unit and China has such a challenging task of managing energy supply and balancing the consumption of energy versus the environmental concerns.

So, the energy sector needs to be very carefully managed and planned for the future and you would need a Ministry of Energy to do this. But other sectors, other agencies may not be necessary to stay on; for example, the need to turn the Chinese sports administration into a complete social agen-cy, not a government agency.

The second area would be between the central government and provincial municipal govern-ment, they need to have a series of restructuring or transformation so some of the authorities are centralised, such as environmental regulation. You don’t want local governments to have a big influence on environmental regulation; you should try to ensure a national, environmen-

tal standard. There are some areas where the local state needs to have more authority and there are areas where the central government needs to have more centralised and top-down authority.

And the third area is at the procedural level. Government processes need to be more transparent, more efficient, they need to take more advantage of the information technology and do a lot of things electronically to save people’s time and to (reduce) the number of stages that people go through to deal with the issues of government, so that the government can become a more user friendly, more service-orientated government and really become a service provider.

Upon entering office, Premier Li Keqiang pledged just over two years ago that the central government would give up one-third of its 1,500 plus administrative review and approval powers by abolishing them or delegating them to lower level governments. Statistically, this goal has already been reached. In reality, has progress been made in regards to whether processes have become easier for ordinary citi-zens to get things done?

I think things are happening at the central level. The central government is quite serious in scrapping a lot of approval processes or requirements. But things get much messier at the local level; at the provincial level. I think the good thing might be that there are localities that actually take advantage of this push to reform. Let’s say Shenzhen for example; Shenzhen may take the lead to simplify a lot of administrative processes.

Government processes need to be more transparent, more

efficient, they need to take more advantage of the infor-

mation technology and do a lot of things electronically to save people’s time and to (reduce)

the number of stages that peo-ple go through to deal with the

issues of government.

22 23CHINA PLUS

5 YEAR PLAN

22

SOCIETY

How can central and regional authorities work together to streamline the government?

Of course, the central government always sets the tone, sets the direction, and then the more enterprising local authorities; they will innovate, they will take the lead and hopefully because of intra-provincial, intra-competition, let’s say Shenzhen does this then Guangzhou has to fol-low if Shenzhen’s way is the better way.

So, Guangzhou has to learn from Shenzhen’s practices, and then Shanghai has to show that they are also very innovative and they are also very keen to make their government more efficient. So, learning can happen and compe-tition will help.

With government regulation, is it a case of the less, the better?

I think in general, China suffers from too many government regulations in many areas. But there are areas where China still lacks reg-ulatory capacity. In food safety, in the aviation ministry and so on, the government’s ability to regulate is still weak.

In that way you do need to be very careful when the government designs a reform plan – you cannot do across-the-board cuts or you cannot do across-the-board expansion. You must carefully target areas of weakness and improve institutional resources and actually it takes a lot of time; it takes many years to build very effective regulatory capacity.

There have been numerous efforts to promo-tethe idea of the rule of law and administrative reform not exempt from this trend. Last year the central government amended the admin-istrative litigation law trying to make things easier for people to file lawsuits to challenge local government actions. In China’s foreseeable future, what should the relationship be between administrative reform and the law?

I think the two things are together, building the rule of law and building public administra-tive capacity, they are together; they cannot be separated. The idea is that reform is to achieve a public administration system that works according to rules, according to non-personal rules, where there are rules to follow and peo-ple can resort to rules when things go wrong.

And these rules take many forms; they are formal laws, they can also be less rigid laws, government regulations or some commonly agreed norms or understandings. So, the idea is you have to remove the arbitrariness of government employees when they deal with the citizens and when citizens deal with the government they must know that the government must be law-abiding and if they feel they are not justly dealt with they can resort to legal processes to require remedies or require compensa-tion from the government. So, the idea of the rule of law is going to be guiding the government reform for many years to come.

What lessons should China learn from past administra-tive reform experiences?

One lesson is, economic development has been very rapid for the last 30 years. That requires a lot of work to happen in institutional building, in changing and transforming government structures, the government’s role, transform-ing government processes.

So, this government reform has been slower compared to what has happened in the economic sphere. By 2010 to 2012, you feel things are getting a bit chaotic, such as pollution, food safety and corruption. So, what are called the “new generation of leadership,” they actually came to office with a very keen understanding of the need to build up institutions.

I think Xi Jinping laid out building a modern gover-nance system for China in 2013, during the third ple-num, and then in 2014 his major policy document was the rule of law document. So, the idea is very clear; the economic and social changes in the last 35 years require that you put in place new and more modern, more efficient, more rule based governing institutions for the economy and for the society.

The idea is that reform is to achieve a public ad-ministration system that

works according to rules, according to non-per-

sonal rules, where there are rules to follow and

people can resort to rules when things go wrong

CREATING A MODERATELY PROSPEROUS SOCIETY FOR ALL, EASIER SAID THAN DONE

China is seeking to create a “mod-erately prosperous society” via its 13th Five Year Plan. In an effort to explore how the country will go

about achieving such a monumental task, as well as examining what a “moderately prosper-ous society” actually means, China Plus talks to Dr. Jennifer Holdaway, Program Director of the China Environment and Health Initiative at the Social Science Research Council.

China has said that the 13th Five Year Plan should allow it to create a “moderately prosper-ous society in all respects by 2020.” How do we define that concept and how achievable is this as a goal?

Well, the concept of a moderately prosperous so-ciety, called “Xiaokang” 小康 in Chinese, has long historical roots. But it has been revised recently, pri-marily by Hu Jintao in the early 2000s, and this re-ally happened in the context of growing awareness of social inequality and environmental degradation even though the economy was growing very fast.

So, while Deng Xiaoping really focused on economic growth per se, and he famously said it was ok if a few people got rich first, achieving a “Xiaokang” society shifts the emphasis to the idea that the majority of people should reach a comfortable living standard.

In terms of economic indicators, the goal for the 13th Five Year Plan is an increase in GDP. I’m not an economic analyst so I’m not in any position to assess whether that’s feasible in economic terms, but it does seem that it will be a big challenge in light of slowing growth in China.

But what I would stress is that really whether China can achieve a certain set of goals measured in terms of average economic indicators isn’t necessarily the most important thing to consider in terms of evaluating policy success.

I think what will be equally important is the quality of the growth and whether it provides the basis for future equitable and environmentally sustainable development. And the other thing is how the benefits of growth are dis-tributed across population groups because that will also have a lot of implications for social cohesion.

24 CHINA PLUS

SOCIETY

25

5 YEAR PLAN

To take the first point, I think it’s important to point out that China is really taking a very ambi-tious path here. It’s attempting to make the transi-tion to a high value and cleaner economy at a lower level of development than earlier industrialising countries did, and at a point where much of the country still hasn’t completed the transition from agriculture to industry and urbanization.

So, the service industry is now a large contrib-utor to GDP, but in 2013 more than 30% of the population was still employed in agriculture and urbanization is only 55%; so there’s a long way to go just in terms of making that earlier transition without even thinking of a shift to a service economy.

If you look at the structures of education in China, it’s not clear that the human capital base is there to make that transition to higher value and services, which is part of the plan because in many parts of the country most people still don’t have a high school degree.

A couple of other things to note, one is that higher value industry jobs and services are cleaner from an environmental point of view and they may make a bigger contribution to GDP, but if that goes hand in hand with mechanisation and digitalisation then they don’t necessarily provide as much employment as lower value manufacturing and traditional type service jobs.

And when you just look at the service sector you also have to look at whether the jobs that are created are in high income sectors like insurance, real estate, finance; or whether they are low skilled, low paid traditional services. If it’s the latter, then (those jobs) don’t necessarily raise living standards all that much. In fact, industrial workers may actu-ally see a drop in living standards.

So, unless the whole workforce is very educated or the country is small enough to find a high value economic niche, then that transition to services doesn’t necessarily raise all boats equally.

Total migrant population is set to reach 290 million by 2020. What challenges does China face in terms of migration?

Migration is a part of both the transition from agriculture to industry, so it’s an economic shift, and it’s also a transition from rural to dense urban living, so there are two aspects to it. I think this involves integrating migrants both into the industrial service workforce and it also involves integrat-ing them into cities in terms of providing housing, social services and education.

An important thing to note here is that migrants aren’t a homogeneous population in terms of their migration status, the kinds of jobs they do, and the kinds of difficulties that they face. Just to clarify, every Chinese citizen is assigned a registration status at birth which includes both where they were born and also their rural or urban status; a Hukou. Different migrants have different Hukou status and this affects their ability to get jobs in cities, to be eligible for jobs in cities and also to be eligible for services.

So migrants include people who migrate from one city to another without being able to change their Hukou, and they don’t have that many problems getting jobs; so the urban but not local people have some problems but not many. Then there are people who migrate just from the surrounding rural areas of a city into the city, so they are local but rural.

And lastly, there are people from other rural places who are both non-local and rural and they have the most diffi-culties; so when you think about Hukou reform you have to think about how it would affect those different groups. That figure of 290 million, that includes rural people who have migrated to cities locally and those who have moved to a different city.

If you think about people who are just migrating to a local city, the situation has improved quite a lot and there aren’t so many challenges now. That is because cities have generally opened up employment to those people and the benefits for rural areas have also been expanded, so the discrepancy be-tween rural and urban benefits is not as big as it used to be.

Because of that, some of those people in those rural areas don’t even want an urban Hukou anymore, especially if they would have to give up their land and their housing in the countryside. So, it’s really rural people who move across provinces that face the biggest barriers in settling or integrating into the city if they don’t meet the require-ments for changing to an urban Hukou; so, integrating them is the biggest challenge.

Also because they are quite mobile they often move around, so providing services and financing services, reimbursement for healthcare and so on, that becomes difficult if you have a highly mobile population. But overall, at this point, quite a lot of researchers are saying that really the bigger problem now is this kind of inter-provincial inequality.

The other point I think is important to make here is because China is so diverse, in terms of its level of economic development and economic structure in different cities, different cities have different challeng-es in terms of the kinds of migrants they are going to be attracting and the kinds of services they need. For example, manufacturing workers who may be more often than not young and female have different needs from service workers who may be older and more educated; migrants with families have different needs than migrants without families and so on.

So, although the government has called for equalising service provisions and opening up social protection systems to migrants everywhere, different cities tend to actually implement those re-quirements quite differently. There has been some interesting research by the Chinese Academy of So-cial Sciences that has looked at this and found that there are different models that cities have taken.

So some of them have very high levels of public services but they also have a very high barrier to ac-quiring a local Hukou. Therefore, if you can get in you can enjoy a very high level of benefits but it is difficult to get urban status; that is the situation in Beijing.

But there are other cities where it is easier to obtain an urban Hukou but the services that you can get as a result are much lower and you would end up having to buy most services on the market; Guang-zhou is actually more like that. The actual meaning of Hukou reform is quite different in different cities and you have to look at specific cases really.

At the provincial level, Guangdong province has taken steps to make life easier for migrant workers, so it plans to grant the Hukou to more than 13 million migrant workers by 2020. Broad-ly speaking, is this a step in the right direction despite the lower level of services on offer?

I think it definitely is and it shows that the local governments are realising that they have to have a plan for integrating migrants over time. Guang-dong has said that it plans to replace the former system of separate rural and urban Hukous with a province-wide residence registration. That would really help to equalise provisions for rural and urban people within the province.

But if you look at the plan you would see that the equalisation of rights for migrants from outside the province is very different and it is actual-ly going to be implemented in different cities differently based on their size and their industry structure; and also in different ways for migrants with different skill levels.

So, people who are quite highly skilled and have been living and working in cities for 3-5 years and paying into social protection programs, they will be in the best position to transfer to a local Guangdong Hukou quite quickly.

But migrants who have been working in the informal sector or who have arrived quite recently, they will be excluded until they can meet those requirements; it is a points-based system. It’s a bit worrying that the most vulnerable local workers are still really left outside of this scheme.

Reforming the system of medical insurance. Theoretical-ly, 95% of people are covered by it but the leadership has admitted that major flaws exist.

It’s very urgent. Providing healthcare is a very basic thing. It affects not only individuals and their families but a failure to provide adequate healthcare will also affect the whole society. Some of the major flaws at the moment in the system, although most people are covered to some degree, they’re not covered for everything; a lot of illnesses are not included.

And rural healthcare services are still very poor in most places, not everywhere but most places in relation to major cities, so a lot of people tend to gravitate towards a limited number of city hospitals for care and they then become overburdened.

The other thing is that people can usually only be reim-bursed for care in the place in which they are resident and that is a big problem, especially for those interprovincial migrants who would then have to go back to their place of origin to seek care and to be reimbursed and that would really disrupt their employment.

In the long run, it is going to be very important to address these issues. But it is very challenging when you have such a big country and such urban mobility, you really need portable benefits and some kind of universal reimbursement system or you need some kind of way to even out resourc-es across jurisdictions and that is not really in place at the moment. But it is certainly a good thing that these issues are on the agenda now.

小康Well-to-do. Comparatively well-off. Comfortably off

[xiao kāng]Unless the whole workforce is very educated or the country is small enough to find a high

value economic niche, then that transition to services doesn’t

necessarily raise all boats equally.

China Plus, a member of China Radio International, is a comprehensive provider of news and information, covering a number of different platforms including print, radio and digital media. China Plus strives for quality and clarity as part of its in-depth reporting of China-related news, as such news relates to Chinese people and to the wider world.

Editor-in-chief Stuart WigginDesign & Layout Stuart WigginExecutive editor Xie Qiao