OPINION> Commentary
Home market boost to rebalance development
By Lau Nai-keung (China Daily)
Updated: 2009-03-12 07:45

The Government Work Report presented by Premier Wen Jiabao at the ongoing annual session of the National People's Congress signaled a new direction in the country's development priorities. The budgets for rural areas, farmers, migrant workers, and the agriculture, education, housing, culture and environment sectors have each been raised by 20 percent or more, with their cumulative amount crossing more than 10 trillion yuan ($1.46 trillion). Such a sharp rise in the allocation of resources for people's general welfare is unprecedented in China.

The increase is the culmination of the Scientific Outlook on Development propounded in the two documents. But to be fair, without the economic crisis brought about by the financial tsunami that began lashing the world in September, these measures would not have been as robust.

In economic terminology, this is called investment in human capital. But the term is seldom used in China because of a humanitarian tradition that doesn't treat a person merely as a factor of production.

Though the ultimate goal of a socialist society is to lift everybody to the same social and economic level, the reform and opening-up policy implemented 30 years ago allowed some people to get rich first. So the wealth distribution in the country has become very uneven, with the living standard in rural areas, especially in inland provinces, much lower than that in cities and the coastal region. And given the vastness of China, the some-get-rich-first trend cannot be changed immediately.

Budget allocations, which strike a compromise among different interest groups throughout the world, began changing gradually in recent years only. But the economic stimulation has given the government a good enough reason to make a bold turn. And the argument that the fundamental problem of the Chinese economy is under-consumption makes a whole lot of economic sense.

Because of the acute income disparity and low social security, the few rich spend very little and the many poor have very little to spend. Those in the middle (stratum) have housing, education and medical expenses to worry about because of which they don't want to spend on other things unless forced to. As a result, the savings rate in China is as high as 45 percent, something unheard of anywhere else in the world. Our factories have, therefore, been forced to produce for the world market and look like crumbling like a house of cards with the sudden slump in overseas consumption.

To maintain a stable employment rate and produce more, the government has turned to the domestic market. And to enlarge it, it has to quickly raise the purchasing power of the lower-income group and entice the middle class to spend more. In short, the government has to address several social problems and take care of the people if it wants the domestic market to expand. Experience from around the world shows that spending on people creates more jobs and has a bigger multiplier effect in the short term, and investing in infrastructure improves productivity in the long run. Hence, help extended to the underprivileged in the short run is welcome in these times of global downturn.

It is important that we stick together as a people, for without unity many of us would not survive the economic downturn. In fact, altruism, which is at the core of socialism, has become more popular around the world after the global financial crisis set in. And China is not about to go the other way and adopt trade protectionism. On the contrary, it has been warning other countries against resorting to protectionism and pursuing a beggar-thy-neighbor policy because that will leave us in a worse situation.

China is undergoing a major policy shift. Even on the economic front, an emphasis on domestic consumption implies total realignment of its development strategy. Exports will no longer be the main driver of economic growth. Most factories would produce primarily for the domestic market, with exports being a natural extension. Chinese fashion, probably with Hong Kong as the center, seems set to get its share of the global market along with Paris, Milan, New York and Tokyo. This is in line with the stated objectives of indigenous innovation and upgrading, from original equipment manufacturer (OEM) to original design manufacturer (ODM) and own brand manufacturer (OBM).

Overseas investors should be happy with this because China's healthy growth would mean continuation of its reform and opening-up policy. Thus, investors who share this new line of thinking can exploit the country's huge domestic market.

But more importantly, these measures will change China's social landscape forever. Imagine nearly one billion people leading a better life, worrying less about housing, education, health and retirement. Improvement of people's general welfare is what development is all about. After the unprecedented boost in GDP for three decades, which laid the material foundation for the current measures, the country is taking concrete steps to achieve this goal.

Compare this aspiration with the life many of us are now leading. Though productivity has improved greatly in recent years, people across the world are working longer hours, under more stress and with less and less time for their families and themselves. One may ask, what is this all for. During these trying economic times, people in many parts of the world may have more time to ponder over this fundamental question. Perhaps now is the time for China to work more closely with rest of the world to explore how all the countries can share their fortunes and knowledge to improve the general welfare of humankind.

The author is a member of the Hong Kong Special Administrative Region Basic Law Committee of the National People's Congress Standing Committee.

(China Daily 03/12/2009 page9)