China's National People's Congress: the downside of phenomenal growth
The key points
At the annual National People's Congress in Beijing, Premier Wen Jiabao told some 3,000 delegates of plans to give China's rural regions a greater share of the country's growth in the years ahead. Economic growth in major centers like Beijing and Shanghai would be moderated somewhat, with more support directed toward farmers instead.
In recent years, rising state revenue had gone largely toward strengthening the military, but this year the focus shifted to the social dimension.
The GDP growth target for the year was set at 8%, down from the 10.7% China achieved in 2006. Wen said the slower pace was necessary to prevent the economy from "overheating." Another goal was to narrow the gap between urban and rural development. "Development in cities and in the countryside is deeply uneven," Wen warned. "We need to better balance the quality and efficiency of our economic growth."
The background
As expected, all proposed measures were approved by the delegates without objection — the actual decisions are made beforehand in private meetings among China's political leadership, so the Congress mainly serves to make those decisions public and have them formally endorsed.
The push for greater rural investment is partly a response to protests by farmers and disgruntled workers, who earn only about a third of what city workers make for the same kind of labor — rural income averages roughly 350 euros a year. The income gap clearly needs to narrow, yet the opposite trend has so far continued: recorded protests rose from 11,000 a decade earlier to 87,000 in 2005.
Boosting purchasing power
In the long run, the hope is that greater rural investment will accelerate the modernization of agriculture and, over time, raise rural incomes — which would in turn benefit China's economy, currently far too dependent on exports and too reliant on external rather than domestic demand.
This heavy reliance on exports has already caused domestic strains and friction with the US, partly because China has kept its currency comparatively weak.
Planned legal reforms
Also on the agenda this year was a reform of property law, aiming to put private and public property under the same basic legal framework.
Perhaps more significant for foreign businesses: after years in which foreign companies enjoyed a lower income tax rate than domestic ones, the plan was to bring corporate income tax to a unified 25% for both foreign and domestic firms.
Labor law was also expected to see changes, with stronger worker protections modeled on Northern European practice — for instance, stronger protection against dismissal. These proposals were still under discussion and not yet finalized.
Putting people first
Amid all the discussion of legal reform, one thing was clear: for the leadership, signaling that ordinary people come first mattered more than courting further investment. Wen said China "must protect workers' rights" and ensure that the whole population genuinely benefits from economic growth.
