Leaping Forward, China May Grow More Slowly

High-level Communist Party officials will meet this month to craft China's latest Five-Year Plan. The 12th such policy statement since the founding of the People's Republic in 1949, it will be refined in coming months before its formal unveiling at the National People's Congress next March.

Some analysts say that in today's China the plan has little relevance. Others disagree. "In many countries one can say the governments don't have long-term vision, but you can't accuse China of that," says World Bank economist Louis Kuijs. The bank tracked the record of the 11th plan and found progress on goals such as health care and pension reform. China was less successful at boosting energy efficiency. The U.S. Chamber of Commerce in China watches the plans to spot industries getting special favor from Beijing.

The 12th Plan is expected to strongly emphasize a shift to domestic consumption (which still only makes up around 36 percent of gross domestic product) and less reliance on export manufacturing and heavy industry. Big topics will include solving growing income inequality, building up the social safety net, boosting the minimum wage, encouraging the services sector, and driving investment into the lagging interior of China. Another goal, encouraging urbanization, could mean further reform of the hukou, or household registration, system. The hukou system, though no longer enforced as stringently as in the past, requires residents to apply to relocate and often impedes the free movement of unemployed peasants to the cities.

China's quest for more balanced growth is likely to mean a reduced GDP target, maybe 7 percent a year. That would be down from 7.5 percent in the last plan, which was well below the average recent growth rate of 11.4 percent.

Analysts also will be watching the meeting to see if Vice-President Xi Jinping, the likely successor to President Hu Jintao, is named a vice-chairman to the central military commission, a key step in his rise to paramount leader. If Xi is not named to the commission at the meeting, it could indicate some opposition to his anointment, says Cheng Li, a scholar at the Brookings Institution in Washington.

The bottom line: China's 12th Five-Year Plan will stress balanced growth, more urbanization, a better safety net, and a higher minimum wage.

    Before it's here, it's on the Bloomberg Terminal.