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CHINA: Sustainable Development Gets Priority

Antoaneta Bezlova

BEIJING, Mar 6 2007 (IPS) - Chinese leaders are seeking a new formula for expansion of the world’s fastest-growing economy, which addresses the costs of growth such as environmental damage and a widening income gap. They want to switch to a more sustainable mode of development where China consumes and pollutes less.

But they face a quandary. While aware that China’s current model of development, driven by investment and exports is unsustainable, they fear that recalibrating the economy might result in greater unemployment and political instability. As investment growth slows, the adverse social effects might imperil the political legitimacy of the ruling Chinese Communist party, which took power 58 years ago promising to deliver growth and rising prosperity.

In a nationally televised speech, which opened the annual session of the National People’s Congress in Beijing Monday, Premier Wen Jiabao said China was not going to abandon the export-driven growth that has helped it become the world’s fourth-largest economy.

“Promoting economic development and increasing employment through the expansion of foreign trade is a policy that we shall pursue for a long time to come,” Wen said.

The remarks came two days before United States Treasury Secretary Henry Paulson is scheduled to arrive in Beijing, bringing a warning that the Bush administration is dissatisfied with China’s huge bilateral trade surplus and undervalued currency.

In recent years China’s growth has relied increasingly on exports, which has made it vulnerable to a global slowdown in demand, while increasing the risk of protectionist backlash in the U.S.and other countries. The export boom has pushed foreign-exchange reserves to one trillion US dollars and created tension with trading partners.

China’s products are cheap because the yuan, the Chinese currency, is kept artificially low, U.S. and European manufacturers and lawmakers allege. Last week, Paulson warned about “a worrisome trend” on Capitol Hill toward acceptance of the idea of erecting barriers to trade to try and slow a flood of cheap imports from China.

Chinese leaders are aware that the current investment and export-led growth is creating numerous problems, both internationally and domestically. At home, the model hurts because it is occurring at the expense of private consumption. Abroad, it is being blamed for creating trade tensions and exporting pollution.

”We need to adjust the balance between investment and consumption”, Wen said in his work report delivered at the Great Hall of the People in Beijing.

As consumption is the main way to improve living standards, experts say China’s reliance on exports or investment is holding back prosperity.

This is particularly evident in the countryside, home to 800 million people, or more than 60 percent of Chinese population. The average disposable income of farmers in 2006 was 3,587 yuan (463 dollars), less than a third of that available to people in towns and cities, according to government statistics.

In the past the government promised to spend more to raise lagging incomes in the countryside. It has also initiated a ‘rural reconstruction’ drive, aimed at building more infrastructure in the villages and channelling more state funds towards basic healthcare and education.

Wen Jiabao confirmed that Beijing continues to see boosting domestic consumption as a potential source of economic growth. “We will take a variety of measures to increase the income of both urban and rural residents, especially low- and middle-income person,” the premier said. “We must adhere to the principle of boosting domestic demand, focusing on expanding consumer demand”.

In the long term the government wants to provide incentives for people to spend more and save less by boosting social programmes like pensions, healthcare and education.

Experts however warn that it will take a long time and it will require a huge increase in government spending, before any meaningful progress is made on boosting rural consumption.

“At present, the rural re-construction drive is geared more towards reducing the trouble that China is causing abroad by buying too much and exporting too much,” says Wen Tiejun, a senior rural expert at the Renmin University in Beijing.

China’s rapid economic growth is indeed having international repercussions. It is one of the reasons why international oil and other commodity prices have risen so quickly in the past two years. Meanwhile, the booming trade surplus, which hit 180 billion dollars in 2006, is aggravating relations with China’s trade partners.

Creating and exporting pollution is another side effect of the country’s strong economic performance. As the world’s largest producer and consumer of coal, China is also the largest emitter of sulphur dioxide; its emissions of this gas have been blamed for acid rain in Japan and South Korea.

Cross border sandstorms resulting from over-exploitation of land and desertification are also a problem for countries neighbouring China. There are now growing fears about toxic emissions from China blowing across the Pacific Ocean to the west coast of North America.

On Monday Premier Wen detailed plans to shut down “backward” steel and iron foundries and inefficient, polluting power plants. He said development projects would have to meet national environmental standards and vowed that China must “bring pollution under control.”

“We must make conserving energy, decreasing energy consumption, protecting the environment and using land intensively the breakthrough point and main fulcrum for changing the pattern of economic growth,” Wen told the 3,000 legislators.

Wen’s vow came even as he admitted that China in 2006 failed to meet the government’s goal of cutting the amount of energy used to generate each unit of GDP by four percent, the first stage of a bigger, five-year plan to reduce energy consumption by 20 percent.

Wen Jiabao set a government target of 8 percent economic growth for 2007, the same as last year, but acknowledged the difficulty of capping China’s runaway economy. Last year China’s GDP actually rose 10.7 percent.

Even as it seeks to curb excessive investment and moderate growth, the Chinese leadership will want economic growth to remain strong to ensure political stability in the run-up to the Beijing Olympic Games, scheduled for August 2008.