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China - 9th Five-Year Plan 1996-2000

Some of the more pivotal developments in the evolution of the modern Chinese economy include the Fifth Five-Year Plan (1976-80) that ushered in the “reforms and opening up” of Deng Xiaoping and the Ninth Five-Year Plan (1996-2000) that featured the revolution in ownership triggered by the first wave of state-owned enterprise reforms. Both of these earlier plans were key milestones in the development of China’s producer economy.

Policy over the next 15 years was broadly outlined in the Ninth Five-Year Plan for National Economic and Social Development (1996-2000) and the Long-Term Target for the Year 2010 which were adopted by the National People's Congress in March 1996. Significantly, the NPC's session coincided with the Taiwan strait crisis. With attention focused on Taiwan, the central leadership had little trouble chaperoning the two documents through the NPC. The provinces, in spirit of unity, all fell in line. The proposals focus on policy priorities in agriculture, state owned enterprise reform, the services sector, infrastructure investment, and science and technology. However, competing economic, political and social forces will inject a dose of reality into the lofty goals of the two documents. Rising unemployment, rapid urbanization and widening income disparity are likely to temper state enterprise reform and expenditure on science and technology. However, expansion of agriculture, key infrastructure investments and the reform of the services sectors would be carried through.

The central leadership's emphasis on ideology over pragmatism tended to slow the pace of change in policy. Radical new market oriented initiatives were unlikely when consensus is at a premium. Reforms in the state-owned enterprises (SOE) industrial sector were agonizingly slow. The fear of widespread unemployment and ensuing social instability was the main determinants of the pace of overhaul and re-structuring of SOEs. The gap between policy and implementation was narrower in finance and services, where the status quo proponents had a smaller constituency.

By the 1990s strains due to the clash of an emerging market economy with an authoritarian political regime and a command and control policy formulation system were already evident. The resolution of the contradiction between centralized control and a free-wheeling market system, both at the regional and the national levels, will eventually determine the future of China. Along with economic development and the expansion of the market system, centrifugal decision making tendencies had been strengthened.

The Ninth Five-Year Plan implicitly recognizes these developments and recommended a number of remedies to counter centrifugal tendencies. The plan proposed to further strengthen the political, cultural and social control of the Communist Party without stifling the emerging market based allocation of resources. To resolve the conflict between the political and market systems, the government proposed the creation of 'socialist market system,' a system of market based enterprises which while optimizing their individual profits and asset values also maximize social welfare. The overnment is projected to move away from its current pervasive role in the economy to one where it ensures distributive justice. But demands for political reforms are expected to strengthen as the economy develops and an increasingly prosperous middle class seeks political and cultural plurality and a greater role in determining the future of the country. Past experience suggests that the Chinese economy is very sensitive to any signs of political upheaval and it will continue to remain so.

The Ninth Five-Year Plan (1996-2000) focused on the two weak links in the economy, agricultural production and reform of the state-owned enterprises. The Ninth FiveYear Plan set a target of 500 million tons of grain output at the end of the century up from 460 million tones in 1995, an ambitious target indeed given the limited supply of cultivable land. The much ballyhooed reform of state-owned enterprises (SOEs), another focus of the Ninth Five-Year Plan, had made little progress in the past years, lagging far behind reforms in other areas. The government aimed to introduce major measures in 1996 to accelerate the pace of reform of the SOEs.

For many years, China had the world's fastest growing economy. This rapid pace of growth and industrialization caused economic strain because fuel production cannot keep pace with demand, If China allowed this situation to continue, significant oil imports will be necessary. In 1993, the industrial sector contributed 56% to China's GDP and consumed 61% of the total final energy. The industrial sector would remain the largest energy consumer in China well into the new century. According to China's Ninth Five-Year Plan (1996--2000), China would strengthen its ability to develop new products and will use technological advancement to promote industrial development. The Plan called for special attention in four major areas: microelectronics technology, digital technology, software technology, and network technology.

Population growth for the nation and individual regions must be balanced with economic growth. Population control must be specific to regional circumstances. Statisticians are working to establish accurate base figures and to administer another 1% sample survey. Under the Eighth Five Year Plan, the first born total fertility rate fell below 1 and second births were delayed. It is expected that in the Ninth Five Year Plan fertility will rise slightly.

The Ninth Five-Year Plan placed agriculture on the center stage after years of neglect. In line with population growth and increasing prosperity, the plan sets a goal of 500 million tons of grain output for 2000. The plan emphasizes the need to improve yields, expand utilization of underdeveloped land, reclaim fallow land, and introduce new technologies. In pursuit of policy goals, the People's Bank of China announced in January 1995 that agriculture, along with major infrastructure projects, will be a lending priority for state banks. The plan also proposes revamping of the cooperative credit systems and introduction of new agicultural insurance companies. However, regional analysis raises doubts about the viability of production targets. For example, the province of Heilongjiang proposes to double grain output from 25 million tons at present to 50 million tons by 2000, which does not appear to be realistic under the most favorable circumstances. Observers believed that a total grain output target of 490 million tons in 2000 was attainable if accompanied by prudent investments and increases in food prices with the increase passed back to the farmers.

Regional economic disparities between the coastal east and central and western China has increased dramatically since reforms were initiated in 1979. In 1995 the growth gap between the eastern seaboard regions and the interior was estimated to be over 7%. The widening regional disparity had received considerable attention in the Ninth Five-Year Plan. The open door policy that welcomes overseas investment and foreign companies will continue albeit with new priorities. Concern over expanding regional disparity led to gradual erosion of preferential treatment of Special Economic Zones. The government envisaged a number of fiscal means to encourage investment in the interior, an increased resource transfer from the east to the interior and a gradual shift of labor-intensive industries from the coastal regions to the interior.

But a lack of transportation and communications infrastructure in the interior and the sheer momentum of economically developed coastal areas were major impediments towards regional equalization, and a growth gap was expected to persist. Further, the current policy of transferring resources to the interior to finance new expenditures added to inflationary pressures, ensuring that the inflation differential between the poorer regions, which have traditionally experienced relatively higher rates of inflation, and the prosperous seaboard were further aggravated.

The plan document paid special attention to infrastructure bottle-necks and proposes a number of measures to change poor foreign perception of the commercial environment in these areas. It was expected that foreign participation in transport, communications, power and energy, and airport construction will be stimulated further through incentives which will include limited operations of the projects.

The plan expected rapid urbanization to continue, and by 2010 50% of the population to be city dwellers. Housing demand is expected to increase concurrently and residential construction investment is expected to absorb 13-18% of total fixed investments. Urbanization and rapid growth are expected to create environmental and congestion problems. The government is negotiating with the World Bank and the Asian Development Bank for loans running into billions of dollars to relieve environmental and urban congestion problems. In addition, all projects are expected to focus on environmental cost and benefits. The plan envisages the current investment in environmental technology of 0.7-0.8% GDP to rise to 1.5% of GDP by 2010, though the document emphasizes that tangible economic gains have a higher priority during the Ninth FiveYear Plan.

Rural-urban migration and reforms of the SOEs are expected to bring unemployment rates of as high as 7.5% by 2000 up from current figures of 3%, which incidentally, does not include the underemployed or those who are on government payroll without any work responsibilities. The government projects that in the year 2000, over 278 million workers will be either out of work or will need to be re-trained to meet the demands of burgeoning industry. The reluctance to push reforms of inefficient and money-loosing SOEs and an expanding social net are expected to have a profound impact on government spending.