China seems to prepare for reforms

China seems to prepare for reforms

As we all know, the Chinese annual National People’s Congress is under way. The old government delivered already its manifesto and the new crew has to face manifold problems to come about

In his final report, Premier Wen Jiabao, delivered to the congress after 10 year at the helm, stated: The key to that change is to enhance people’s ability to consume”. The aim is to shift the economy away from reliance on investment and exports, with a more distinct role for domestic consumption, as China kick starts painful reforms to rebalance the country’s economic model. It is planned to raise household income and to ensure a more equal distribution of national wealth. A strong social safety net, in order to free up money for household to spend, forms part of the plan. The central government promised a substantial 27 % increase in its health-care spending to USD 41.8 billion, and spending on employment and social welfare is to rise fast.

The growth target in economic terms is set to around 7.5 % this year, 2012 the growth rate was  7.8 % as we reported before. The rate of inflation is targeted to 3.5 %, in 2012 it was 4 % and this means that expected prices will not accelerate too much. The fiscal deficit is set around 2 % of GDP Gross Domestic Product and is up from 1.5 % in 2012.

Wen Jiabao has voiced also commitments to bring China’s 200 million-plus migrant workers into the urban social welfare system and to provide stronger protections for farmers’ land rights, both will be crucial supporting pillars to support higher household income and greater social equality.

However so far, details on the timeline and implementation of reforms are remaining in the haze. An important question to be solved will be the fact on how cash-strapped local governments will be able to pay for changes. According to observers it seems likely that a major Communist Party meeting in October will reveal more specific details.

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