China’s new five-year plan

March 10, 2011

A military delegate arrives for a plenary session of the National People's Congress (NPC) at the Great Hall of the People, in Beijing March 10, 2011. REUTERS/Jason Lee/Files(The views expressed in this column are the author’s own and do not represent those of Reuters)

This year’s meetings of China’s National People’s Congress, which started March 5, roll out the 12th five-year plan covering 2011-2015. A flock of freshly minted experts assure us that five-year plans are sacrosanct: If the PRC makes a commitment in the plan, it will be met.

Hardly. The PRC’s five-year plans give a general sense of the direction, whether new or old, that Beijing wants to go. But China often does not end up there five years later.

Headlining plan 12 is the new, lower target for annual GDP growth of 7.0 percent. This is not a genuine objective. Beijing intends to exceed that figure each and every year, just as the last five-year annual growth target of 7.5 percent was easily exceeded. Nearly all provincial governments, as they have each year for more than a decade, will then announce results yet higher than the national “average” — new math with Chinese characteristics.

It is not just growth. The previous five-year plan reflected Chinese President Hu Jintao’s stated goal of greater income balance. On official figures, however, income inequality appeared to worsen through 2009, and any gains in 2010 were insufficient to recover lost ground. In other words, both specific targets and grand goals of five-year plans should be taken with many grains of salt.

While five-year plans aren’t good forecasts, they do matter. They are signals from the central government of new priorities, if any, and something of a warning to those who flout them. Frequently, signals are ignored and defiance unpunished, but new ideas can nonetheless be introduced. It is equally true that important ideas can be squashed, as has occurred with interest rate reform for three plans running.

The pledge to emphasise sustainability in development shows the limitations and the importance of five-year plans. One aspect of sustainability is the balance of investment and consumption. The State Council formalised excess investment as a problem in the 2006–2010 plan, but the gap between the investment and consumption shares of GDP only widened.

There was progress, however, toward the objective of reducing energy intensity — i.e., energy use as compared to GDP. This was due in part due to belated discoveries of additional GDP and a dubiously sharp shift in energy consumption. Still, lower energy intensity was a clear departure from the 2001-2005 plan. Not coincidentally, energy intensity is to decline 16 percent over the next five years versus the 20 percent target for the previous five — a signal from Beijing that it has become concerned about biting off more than it can chew.

It generally isn’t necessary to read a five-year plan closely. Skimming it, though, is a good idea.

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