Turning Inwards 

In October, the Chinese Government formulated an outline for the imminent 12th Five-Year Plan (2011-15). If indeed everything goes according to plan, China's economic model - along with average salaries - will have been transformed by 2015. On October 18, the Fifth Plenary Session of the 17th Central Committe of Communist Party of China approved the outline for what might very well become a groundbreaking document.

In last month's installment of the Econometer, we promised to provide more details in this month's edition on China's new Five-Year Plan, covering the period 2011-15, and whether it actually heralds a new era in China's economic growth or not. We can now say that it probably will.

A formal version of the plan will be submitted for approval at the next session of the National People's Congress (China's top legislature) in March 2011, yet it is already obvious that this Five-Year Plan envisages turning China into a major global marketplace (that is, even much bigger than it is now), and, in a break with previous plans, it outlines specific steps aimed at increasing consumption in China. The ultimate objective is to transform China's growth model from an "extensive" investment- and export-driven model to an "intensive" model driven by domestic consumption and technological advancement.

Despite such lofty intentions for the new plan, it is necessary to point out, however, that the idea of altering China's development model has been on the cards at least since the 1996 Five-Year Plan, but progress on this has evidently been patchy at best. Yet after the global crisis of the last few years, which has delivered such strong impetus for China to turn more inward for economic growth, the 2011-15 installment is being touted as an unprecedented break with the past.

As part of this process, the new plan envisages, for example, reform of the functions and investment scope of government ministries and departments, thereby making their operations more simplified and efficient. The plan also envisages substantial further enhancements of public infrastructure in China, with around 3.5 trillion yuan ($522.4 billion) earmarked for railway construction in the five-year period (1.3 trillion yuan, or $194.3 billion, more than the 11th Five-Year Plan), which will see the completion of a 40,000-km high speed railway network extending to all of China's cities with more than 500,000 residents each. An 85,000-km national freeway network, extending to all China's cities of more than 200,000 people each, is also part of the plan.

Yet perhaps the greatest objective for the new plan is for it to serve as an all-round upward driver of wages in China, if it is indeed to succeed in making China into a leading global market place.