Paper no. 2426	24-Oct-2007
China in Hu's Colours---Part II By B. Raman In the report presented by President Mr. Hu Jintao, in his capacity as the party Secretary, to the 17th National Congress of the Communist Party of China and in the subsequent discussions, the following three phrases figured frequently in relation to the Chinese economy: scientific outlook on development, a moderately prosperous society and the conservation culture. The Congress also amended the Party Constitution in order to incorporate the concept of a scientific outlook on development. This has been uniquely Mr. Hu's idea since he came to office after the 16th Party Congress of 2002 and is seen as his contribution to the development of the Party's economic philosophy. 2. To understand the importance of the emphasis on these three concepts at the recent Party Congress, one has to go back to 1978 when Mr. Deng Xioping opened up the Chinese economy to foreign investment and started introducing economic reforms in order to attract investments.  The evolution of the Chinese economy since then has passed through the following three stages:   STAGE I: 1978 to 1992. As an experiment, Deng opened up only the coastal areas of Fujian, Guangdong and Shanghai to foreign investment. He wanted to study what impact the opening-up had on internal political stability. He did not want to open up the rest of China to foreign investors until the authorities had gained confidence that they would be able to manage the political consequences of the opening-up. Most of the investment flows during this period came from Taiwan, Hong Kong and the overseas Chinese businessmen in the ASEAN countries. There was a trickle of investments from other countries such as Japan and South Korea, but this was affected by the adverse international reactions to the way the Chinese authorities handled the student demonstrations in the Tiananmen Square in Beijing in 1989. The State retained its powers for the macro as well as the micro management of the economy and the emergence of a Chinese private sector was not encouraged. STAGE II: 1993 to 2002. The adverse world reactions to the Tiananmen Square incident dissipated. China took steps to encourage investment flows from non-Chinese sources too through incentives such as tax holidays for new manufacturing units etc. There was a significant increase in investment flows from non-Chinese sources too and Chinese exports to the US started picking up momentum. Having gained confidence about its capability  for the political management of the consequences of opening-up of the economy, Beijing started encouraging investment flows into other areas too away from the coastal belt. By the end of the 1990s, there was a torrent of investment flows. The Chinese economy remained largely unaffected by the crash of 1997 in the ASEAN countries. China, which was largely self-sufficient in matters of natural resources including energy supplies in the 1980s, found its resources rapidly depleted as a result of the economic development. From an energy-self-sufficient country, it became an energy-importing country. Even in respect of other raw materials such as iron ore, it became import-dependent. As its exports increased, it became amenable to Western pressure in matters such as diluting the role of the State in the micro-management of the economy, encouraging the emergence of a genuine Chinese private sector, better protection of intellectual property rights etc. The rapid economic development not only brought benefits, but also adverse effects. Among the adverse effects, one could mention the economic disparity between the coastal areas and interior China, income disparities between the urban and rural people all over China, including in the coastal areas and the  emergence of pockets of resentment in the population due to factors such as the peasants' protests over the acquisition of their land at throw-away prices  by entrepreneurs for setting up industries and real estate and over the  rigid controls maintained by the State over internal movement of people in order to prevent an uncontrollable migration  from the poor areas to the newly-emerged prosperous areas. This period also saw the emergence of corruption as a major social evil in coastal China and particularly in Shanghai due to the "get rich quick" mentality of the newly-prosperous class of society. Measures to correct the situation were initiated during the second tenure of Mr. Jiang Zemin as the President and Party Secretary between 1997 and 2002. These included a special package for extending the benefits of economic development to the interior areas with special focus on Sichuan, Tibet, Xinjiang and Yunnan, winding-up unremunerative State-Owned Enterprises (SOEs), encouraging the emergence of a Chinese private sector, which can compete on equal terms with the reduced State sector, strong action against corruption etc. STAGE III: Since 2003.While the torrent of foreign investment flows continued and the annual GDP growth continued to average around 10 per cent, the adverse effects of the rapid growth started manifesting themselves even more than in the pre-2003 period. These included persistence of pockets of resentment and social tensions due to regional and individual prosperity disparities, an aggravation of China's dependence on imports of oil, gas and other raw materials to keep its growth sustained, the negative impact of China's external quest for energy on its image, a series of environmental disasters due to unregulated industries, a further increase in corruption despite severe penalties awarded to corrupt public servants etc. 3. It is in response to these developments that since taking over as the Party Secretary, Mr.Hu has been stressing these three concepts mentioned above. Stripped of jargon, when he talks of a scientific outlook on development, what he has been advocating is a new development model, which would be people-friendly, resource-friendly and environment-friendly. A people-friendly development model would accord greater priority to the need for removing regional and individual economic disparities and for addressing the economic causes of social tensions.  A resource-friendly model would accord greater priority to preventing a rapid depletion of China's natural resources through measures such as development of alternative and renewable sources of energy, which has not received the required importance till now. An environment-friendly model would initiate and enforce better industrial regulations to prevent damages to the environment. His emphasis on a moderately prosperous society is meant to underline that corruption cannot be reduced, if not eliminated, through the deterrence of severe legal penalties alone. There has to be a change in the mind-set, with the legitimate desire for moderate prosperity replacing the unreasonable desire for affluence as the driving force for individual actions. His emphasis on the need to promote a conservation culture is meant to underline that deterrent laws alone cannot protect the environment. The laws have to be combined with the promotion of a campaign to create in the citizens an awareness of the importance of conserving nature. 4. Some of the observations made by Mr.Hu during the Congress are given below as illustrative of his thinking:   "We will promote a conservation culture by basically forming an energy- and resource-efficient and environment-friendly structure of industries, pattern of growth and mode of consumption." "Awareness of conservation will be firmly established in the whole of society." "China will considerably increase the proportion of renewable energy sources in total energy consumption, bring the discharge of major pollutants under effective control and notably improve ecological and environmental quality." "China's economic growth is realized at an excessively high cost of resources and the environment." "We must give prominence to building a resource-conserving, environment-friendly society in our strategy for industrialization and modernization and get every organization and family to act accordingly." China will quadruple the per capita value of GDP in the coming 13 years and complete the building of "a moderately prosperous society in all respects." The new goal must be achieved "through optimizing the economic structure and improving economic returns while reducing consumption of resources and protecting the environment." "China has basically accomplished industrialization, with its overall national strength significantly increased and domestic market ranking as one of the largest in the world. It will also feature markedly improved livelihood for the people, more extensive democratic rights, higher ethical standards, greater social vitality coupled with stability and unity." The principle of "putting people first" has been a long-time guideline of the CPC, resulting in the abolition of ancient agricultural tax and the implementation of free education in poor rural areas in the past five years. The reform of the income distribution system will be deepened  for reversing the growing income disparity.  A reasonable and orderly pattern of income distribution will be basically in place, , "with middle-income people making up the majority" and absolute poverty basically eliminated. 5.  Under an amendment to the Party Constitution adopted by the Congress, the Party will unswervingly encourage, support and guide the development of the non-public sector, play the fundamental role of the market in the allocation of resources, and establish a macro control system. According to the Chinese media, at the end of 2006, China had 4.94 million private businesses, involving a total investment of more than 7.5 trillion yuan. But among the 73 million CPC members nationwide, only three million come from the private sector. The influence of the newly-emerging private sector on policy-formulation is still limited. To be continued. (The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. He is also associated with the Chennai Centre For China Studies. E-mail: seventyone2@gmail.com)
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