China’s 2014 NPC: Long Road to Economic Restructuring

Originally published as जबिन टी. जैकब, ‘बदलाव की राह पर चीन’, Dainik Jagran, 12 March 2014, p. 8.

As India announced elections to the next Lok Sabha, the annual session of China’s equivalent of the lower house of parliament, the National People’s Congress, got underway on 5 March. Premier Li Keqiang as head of the State Council, the Chinese cabinet of ministers, presented his government’s first Work Report. This exercise shares somewhat the same level of importance that the presentation of the Union Budget sees in India, but covers a wider range of issues.

The GDP growth target for 2014 was set at 7.5%. This indicates that China’s GDP will rise to US$10 trillion by the end of the year – compared to the American GDP of US$17 trillion at a growth rate of about 2% and the Indian GDP of just under US$2 trillion at an expected growth rate of around 5.5%.

While India’s recent interim budget announced that the budget deficit was kept to 4.6% of the GDP, this appears to have come at the cost of cutting Plan expenditure in  infrastructure development. Non-Plan expenditure has however, continued to grow. In China, by contrast, the challenge is to cut down on wasteful expenditure on infrastructure that is driven by local governments.

The Chinese budget deficit projected at US$218 billion and equivalent to 2.1% of the GDP might look manageable but China’s domestic debt situation is another matter altogether. In fact, there is potentially a huge debt crisis on Beijing’s hands. In China, it is the lower local levels of government that are responsible for major social expenditures. With insufficient tax revenues, Beijing is unable to transfer sufficient monies to local governments who have therefore, failed often in their social responsibilities. This has led to numerous protests and much unrest in the country.

With banks usually under the control of local governments, they have been forced to lend to governments to prevent further social unrest. But a considerable part of the lending has gone into real estate speculation and creating industrial overcapacity. As a result, China sits on an unsustainably large pile of local government debt. It is for these reasons that Premier Li has announced plans to reform financing for local governments by allowing them to issue bondsand a promise to “improve the macro-control policy framework”.

The Chinese Premier also declared plans for a ‘people-centered’ urbanization designed to give rural people who live in cities greater access to social welfare. Indeed, China has ambitious plans to grant official urban residency to some 100 million rural migrants in the cities and to rebuild rundown city areas and villages inside cities where another 100 million people live. Contrast this to the situation of the migrant poor in India’s cities, who possess practically no social welfare and have even begun moving back to the villages given the lack of industrial growth and therefore, the lack of jobs.

Unlike China were cities and localities have a great deal of freedom in economic policymaking and there are political incentives for ensuring economic growth and good governance, India’s urban landscape is a story of elected officials possessing little powers of any consequence and administrations that are generally indifferent to the needs of city-dwellers.

Li has also repeated the pledges made at the third plenum of the 18^th Party Central Committee last November to transform China’s economic structure by shifting growth based on exports and investment to one led by domestic demand. It is worth noting here that for the first time ever, the Chinese services sector with 46.1% contributed more to the GDP than the industrial sector.

The government also has announced that the private sector will have greater access to public capital, be able to open financial institutions and, no longer face annual government reviews that hitherto only created opportunities for official corruption.

However, reform of the state-owned enterprises (SOEs) still has a long way to go. It is possible that this process might receive a fillip if, as rumours suggest, Zhou Yongkang, China’s former top security official and a member of the last Politburo Standing Committee will be arrested soon on corruption charges. Zhou has strong linkages to the SOEs network, the members of which have exploited their monopoly status to enrich themselves. Thus, Zhou’s exit would probably give China’s current leaders a freer hand in implementing crucial reforms in this area.

Even as India’s 15^th Lok Sabha ended its tenure with the reputation of having conducted the least business among all its predecessors, in neighbouring authoritarian China, the NPC has become increasingly active. The Communist Party might remain supreme but abstentions and negative votes are becoming increasingly common at the NPC. Indeed, the scale of China’s problems are such that it is inevitable that the NPC as representatives of the Chinese people will take up ever more issues for debate and try to hold the government and the Party to greater account.