China cuts growth target to limit its reliance on exports

Published on Sunday 27 February 2011 16:46

CHINA'S government reduced its annual growth target this weekend for the first time in several years, sending a message out to regional administrations across the country that the economic boom must slow down.

In a sign of the leadership's resolve, Premier Wen Jiabao announced yesterday that the government was reducing its annual growth target to 7 per cent, from the 8 per cent goal for each of the past six years. While the economy is certain to grow faster than that, the target has been embedded in planning for so long that a change sends a strong signal to local officials to shift away from breakneck-speed growth and focus on longer-term policies to nurture consumption.

China's latest Five-Year Plan calls for creating self-sustaining growth based on domestic consumption and reducing China's reliance on exports and investment. That will require a cut in subsidies to state industries and curbs on local development plans, and could provoke a backlash among some in the ruling Communist Party.

The leadership has said for years that China needs to alter a system Mr Jiabao has declared "unbalanced, unco-ordinated and unsustainable". But they avoided major reforms until the global crisis wiped out millions of export-dependent factory jobs and drove home the danger of over-reliance on trade.

The plan was approved by party leaders in October and details are due to be announced at the annual meeting of China's largely powerless legislature that opens on Saturday.

The plan could drive a far-reaching transformation of the world's second-largest economy from low-cost factory into a major consumer market.

It would shift money from companies to households, which could narrow the gulf between a rich elite and fledgling middle class who have profited from economic reform and China's poor majority. More consumer demand could help to boost imports, narrowing China's trade surplus - the country currently relies so heavily on trade and investment that household spending accounts for just 35 per cent of its economy.

The wide-ranging plan also extends to areas from foreign policy to family planning to rural irrigation. It promises more rural healthcare spending, and to help out-of-work farmers find jobs in cities.

The plan also promises to allow development - under government control - of civic groups that support causes from environmental protection to feeding the poor. But it envisages no change in rules that limit most urban families to one child and most in the countryside to two.

The plan comes as President Hu Jintao and other party leaders prepare for next year's hand-over of power to a younger generation.They are trying to ensure a smooth transition while leaders manoeuvre to secure top posts for younger allies.

Last week, an official of the Cabinet body that oversees major state-owned companies such as oil giant PetroChina and Bank of China said they will have to hand over more of their profits to the government. They currently pay only 10 to 15 per cent of profits to the treasury, and an increase could help pay for social spending, as well as easing public anger at the wealth of elite state companies.