By Geoff Raby
Premier Li Keqiang had his moment in the sun over the past two weeks with China's annual meetings of the National People's Congress (NPC) and China People's Consultative Committee (CCPC).
The "two meetings", or "liang kuai", each March bring China's political and business elites from across the country together in Beijing for frenzied, speed-networking on steroids. This year was busier than usual with the release of the all-important Thirteenth Five Year Plan (13th FYP).
While Li's high profile over the past two weeks will not end speculation over his future (only President Xi and Li are to continue in the seven-person Standing Committee from next year if convention is followed), and the suspicion that Xi is actually running economic policy through the Leading Group on Economics and Finance, the meetings were intended to create a sense of business as usual.
In addition to the 13thFYP, Li presented delegates with two other key documents on the economy: the Annual Work Report for 2016 and the Review of the 12th FYP. Taken together, they show the Chinese economy settling into a period of more sustainable, but still high, rates of growth as it undergoes deep structural change.
The Annual Work Report contained one innovation with the setting of a target range for 2016 GDP growth of 6.5 per cent to 7 per cent, rather than a single number. Li chose to emphasis structural adjustment and reform, highlighting that the services sector now accounted for more than half of GDP and that growth in small and medium-sized enterprises was a significant factor in the rapid expansion of services.
Vision of growth
For the next lustrum, Li set out a vision of economic growth "no lower" than an average annual rate of 6.5 per cent. This growth rate is required to achieve President Xi's target of doubling 2010's per capita income by 2020. By 2020, China is to complete the task first set by Deng Xiaoping, that China would become a "moderately prosperous society" within 50 years from the late 1970s.
While noting that international economic conditions are particularly challenging and China itself faces considerable head winds, Li predictably was confident that these targets could be met.
Echoing a key theme of recent speeches by President Xi, Li emphasised "supply side" responses. These are not, however, to be confused with Ronald Reagan's supply-side economics that sought to cut fiscal deficits and wind back the government's demand on resources in favour of the private sector.
The Chinese government is intending to slash excess capacity and promote technological upgrading of enterprises. These polices will see continued heavy government intervention, even as the government warns of substantial redundancies and a spike in unemployment during the adjustment period.
At this stage, the 13th FYP is still light on specific measures but the areas of continue policy focus include financial sector reform, agricultural modernisation, reform of state-owned enterprises, deeper urbanisation, environmental sustainability, extending coverage of social security, and greater government transparency.
China's continued attachment to its five-year plans is a holdover from the former Soviet Union. So much of the modern Communist Party in China today in form, if not so much in substance, is based on Lenin's Soviet model.
While seeming ever more anachronistic, if not at times ridiculous, in China's hierarchal structured system it still plays an important part in setting the direction and tone for policy implementation at all the many lower levels of government.
Positive environmental outcomes
Officials will need to ensure that while supporting restructuring and rebalancing of the economy to one based more on higher value manufacturing and services, while at the same time achieving positive environmental outcomes and maintaining high levels of employment.
All levels of government down to the county and village level will be engaged in the process of preparing detailed policy to implement the central government's directives.
China's policy makers now find themselves in a more complex and challenging world. As difficult as that may seem, however, they are swimming with the tide of the market. Much of the 13th FYP is seeking to achieve what the market is already signalling.
Growth of consumption and services is what is to be expected as per capita incomes rise. And with a growing middle class, more and more resources will inevitably be allocated to improving environmental amenities.
While China pessimism has become something a growth industry in recent times, on balance there is much to suggest that the Chinese Government has set itself objectives that it will in five years be able to claim it has achieved. If so, these will, however, have come more from the natural maturing of the economy rather than from the 13th FYP.
President Xi has set himself a clear performance indicator by which to be judged. As long as the government continues to step back and let the market develop more fully, he is likely to get a good grade in 2020 on economic management. How then he balances increased authoritarian political management while stepping back further in favour of market forces is emerging as one of the great questions of our times and one to be resolved during the course of the 13FYP.
Geoff Raby is Chairman and CEO of Geoff Raby & Associates and a former Australian Ambassador to China.
This article first appeared in the Australian Financial Review: