China to Put Consumption Growth at Centre of Economic Reforms

Beijing has outlined plans to shift its economy away from reliance on investment and exports by boosting domestic demand, as the ruling Communist Party attempts to introduce painful reforms meant to rebalance the world’s second largest economy.

Beijing has outlined plans to shift its economy away from reliance on investment and exports by boosting domestic demand, as the ruling Communist Party attempts to introduce painful reforms meant to rebalance the world’s second largest economy.

Speaking at his final National People’s Congress address, outgoing premier Wen Jiabao on Tuesday warned of the urgent need to transform the world’s second largest economy to one that is less dependent on exports, acknowledging that there is a “growing conflict between downward pressure on economic growth and excess production capacity.”

According to Wen, consumption was the key to unlocking the full potential of domestic demand in the economy of 1.3 billion people, as well as reducing excess, inefficiency and inequality.

“We should unswervingly take expanding domestic demand as our long-term strategy for domestic development,” said Wen, delivering his final report to the congress after 10 years at the helm. The key to that change, he said, is to “enhance people’s ability to consume.”

This, he added, would deliver growth of 7.5 percent in 2013. Economic growth in China reached 7.8 percent in 2012, the lowest in nearly 13 years.

Wen also called for accelerated reforms of the country’s rigid hukou household registration system to drive an urbanisation effort which he said underpinned the country’s economic development and could turn millions of rural workers from savers into consumers.

Beijing had admitted earlier this year there was an urgent need for reforms to narrow an income gap that is now one of world’s widest and at levels that analysts warn could spark social unrest.

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Rebalancing growth away from the investment-driven, export-oriented model that has delivered three decades of double digit growth, lifted hundreds of millions of people from rural poverty and turned China into the world’s biggest trading economy, had been a policy priority for much of Wen’s decade in office.

But the goals he announced this week are the blueprint for the incoming administration led by Xi Jinping, who will formally at over as president at the end of the Congress.

Wen said:

[quote]We need to improve the socialist market economy. Reform and opening up are the fundamental force that drives China’s development and progress. We can continue to advance our cause only by adhering to reform and opening up. [/quote]

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