The document summarizes key aspects of China's upcoming 13th Five-Year Plan, which will guide the country's development from 2016 to 2020. The plan emphasizes innovation and increasing domestic consumption to maintain annual economic growth of over 6.5%. It also aims to double the size of China's economy by 2020 through higher quality growth. The plan focuses on developing science and technology, boosting household spending through policies like allowing all couples to have two children, and establishing new economic centers along the Yangtze River. Maintaining high employment and improving social welfare programs are also priorities to encourage consumption-driven growth. Innovation is identified as central to China's future development and achieving its goals by 2020.

2. PLUS 33
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CHINA PLUS MAGAZINE: The 5 Year Plan

3. 5CHINA PLUS4
5 YEAR PLAN INNOVATION
Domestic
Consumption and
Innovation
O
bservers 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-

4. 6 CHINA PLUS
P
rofessor 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.
I
n 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

5. 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

6. 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.
E
very 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

7. 12 13CHINA PLUS
Further Focuses:
Poverty
Reduction
E
very 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 RMB
equates 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
Ithinkitwouldbebetterto
focusonthereallifeaspects
of poverty;whatitreallymeans
intermsof food,intermsof
sanitation,medicalcare
5 YEAR PLAN POVERTY

8. 14 15CHINA PLUS
5 YEAR PLAN
15
GLOBAL
A
s 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?
Ithinkthat’sprobablyright.Ithinktheincomeincreasewillcontinue
withthesuccessofgrowth.Evengrowthatlowerlevels,whichisstated
asthenewnormal,isgrowththatmanycountriesintheworldwould
lovetohave.Thiswillgenerateanincreaseinlevelsofincome.That
coupledwithanintergenerationalchange,whereyoungerpeople
whoareearningareshowingamuchgreaterwillingnesstoconsume,
Ithinkconsumptioninonesensewillactuallytakecareofitself.
Therefore,thefocusoftheFiveYearPlanonsupplysidebecomes
crucial;there’snopointinhavinglargelevelsofwhateconomistscall
effectivedemandifthesupplywithinChinacannotmeetitorifthat’s
completelydivertedintoimports.
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

9. 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 SOEs
Professor 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

10. 18 19CHINA PLUS
LINING
STREAM
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.
S
treamlining 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

11. 20 21CHINA PLUS
FAT
TRIMMING
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.
C
hina 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.

12. 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
C
hina 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.

13. 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.

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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 Wiggin
Design & Layout Stuart Wiggin
Executive editor Xie Qiao