China Congress Puts People First

At annual Beijing meeting, Premier Wen Jiabao announces plans to slow growth in the cities and boost development in the countryside

It's political pageantry time in China's capital once again. The annual meeting of China's National People's Congress opened on Mar. 5 in Beijing's cavernous Great Hall of the People on the west side of Tiananmen Square. Premier Wen Jiabao presented a report on the work of his cabinet in 2006, and its policy plans for the rest of this year, to the almost 3000 assembled delegates.

With a target of 8% gross domestic product (GDP) growth, Premier Wen signaled that the Chinese government will try to control the red-hot economic expansion that clocked-in at 10.7% last year. But even as Beijing tries to slow growth in the cities, China's leader made it clear that the goal is to boost development in the countryside and help create a more balanced consumption-driven economy. "Urban and rural development and development among different regions are not balanced," warned Wen. "We need to greatly improve the quality and efficiency of economic growth."

Wen also expressed concern over the jobless rate, outlining plans to keep urban unemployment below 4.6% (it was 4.1% in 2006) and the need to create 9 million new jobs in Chinese cities. "We must pay closer attention to promoting social development and improving people's well-being. We must put people first."

Taking a Stand?

All of this, as might be expected, went down well with the delegates. Wen's speech, over two hours long, was repeatedly interrupted with ritualistic applause from Parliament members, who travel from across the country to pass bills and approve the budget and new party promotions, during the approximately two week-long session.

Although real policy-making happens earlier, during meetings of China's top leaders, the Congress is important as a means to put the official imprimatur on—as well as publicize—government goals and policies. That's largely a rubber-stamping function, but in recent years delegates have increasingly registered their independence by voting (albeit in small numbers) against unpopular policies and promotions.

Premier Wen laid out a key goal for the government this year: narrowing the income gap and boosting buying power in the countryside. With rural incomes averaging $448 a year, or less than one-third urban incomes, protests by distressed farmers and angry workers are surging. That's sparking fears that social unrest could derail China's economic growth. In 2005 the number of protests reached 87,000, compared with 11,000 a decade ago, "Income disparity has come to a very alarming point, and it keeps increasing," says Li Ping, chief representative of the Beijing office of the Rural Development Institute, a Seattle nonprofit that focuses on rural land issues.

Creating Consumers

Beijing knows that it can't reverse the income gap without fixing stagnant growth in rural China, so it is redirecting government funds to rural areas, ending many rural taxes, and introducing new agricultural technology. "This year's work related to agriculture, rural areas, and farmers will focus on accelerating the development of modern agriculture and effectively promoting the building of a new socialist countryside," Wen said. "We must focus on developing the rural economy and increasing rural incomes."

Beijing also hopes that more buying power in the countryside will boost consumption and help wean China from its heavy reliance on exports. That should lessen growing trade frictions abroad too. With last year's trade deficit with the U.S. setting a record of $232.5 billion, there is a louder call in Washington for China to open its markets more and allow the yuan to further appreciate. "We're dissatisfied with the speed with which China is appreciating its currency," said U.S. Treasury Secretary Henry Paulson, Jr. on Mar. 1, just a week before his planned visit to Beijing.

It might sound like something from another century, but Beijing's new socialist countryside policy is aimed at building the infrastructure to deal with modern-day headaches. "It's trying to emphasize domestic demand, trying to reduce foreign trade dependency, trying to reduce the trouble China makes overseas," says Wen Tiejun, dean of the School of Agricultural Economics and Rural Development at People's University in Beijing.

Cost of Labor Protections

Also on the agenda, the likely passage of a ground-breaking property law that will put private ownership on equal footing with public ownership, and a second law equalizing corporate income taxes that has drawn foreign investors' attention. The tax law is expected to bring foreign and domestic companies' income tax to a common 25%, reversing years of preferential tax policies for foreign companies.

Laws governing labor contracts, employment, and labor disputes also are being discussed, both inside the Congress and by nervous foreign investors. With the laws' emphasis on strengthening Northern European-style labor protections, including making it more difficult to hire and fire, they are likely to raise costs for employers in China, says Jiang Junlu, a partner at Beijing law firm King & Wood.

"German labor law is very influential in China," says Jiang, who also serves as chair of the labor law committee of the All China Lawyers Assn. The laws "will put new restrictions on employers," he says (see, 3/12/07, "Rumbles Over Labor Reform").

That's not something Beijing seems much worried about. The new leadership these days, wants to emphasize its populist credentials, rather than woo investors—foreign or domestic. China must "protect the lawful rights and interests of workers," and must "ensure that all of the people share in the fruits of reform and development," said Wen. As the annual political ceremony that is the National People's Congress gets under way, Beijing is busy signaling that, at least in rhetoric, the people come first.

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