More Balanced Development

This year’s GDP target lowered to 7 percent, as focus shifts to sustainable development


Development should be a multi-faceted concept rather than the blind pursuit of gross domestic product (GDP). This new concept of development will exert profound influence on Chinese society in the new century.

This is the view of Hu Angang, Director of the Center for China Studies, Tsinghua University, who believes this concept would help solve a series of problems in society. For instance, promoting employment and increasing farmers’ incomes will be regarded as priorities in development plans, and new standards will be adopted to evaluate the performance of government officials, who will no longer concentrate all their attention on GDP.

GDP Reconsidered

In Changxing County of Zhejiang Province in east China, where the economy is more developed than other regions of the country, the local government decided in February that this year GDP should no longer be an indicator for evaluating the performance of government officials.

BEARING THE BRUNT: The current disadvantaged status of
migrant workers is expected to be improved amid the
government’s efforts to coordinate economic and social progress

“Our small cement plant and small battery plant were indeed profitable, but our environment has been damaged,” said Lao Hongwu, Magistrate of Changxing County. “Such a situation must be changed as we are striving to build an ‘ecological county.’”

Like Changxing County, many other localities in China are moving away from an excessive belief in GDP.

According to Li Peilin with the Institute of Sociology under the Chinese Academy of Social Sciences (CASS), per-capita water resources in China is only 2,500 cubic meters, about a quarter of the world average. However, the consumption of mineral resources and energy for per-unit output value in the country is three times the world average, while sewage load per-unit area is more than 16 times the world average. The labor productivity of Chinese workers is only about one-35th that of developed countries.

The 15 years from 1985 to 2000 saw rapid growth of the Chinese economy, with the average annual GDP growth being 8.7 percent. However, taking into account natural and human factors such as the loss cost and ecological deficit, the “real national wealth” was only 78.2 percent of the nominal wealth during the period. That means the actual average annual GDP growth was only 6.5 percent over the 15 years.

According to Niu Wenyuan, Chief Scientist and Team Leader for Research on Sustainable Development Strategy under the Chinese Academy of Sciences (CAS), China is ecologically vulnerable with scant per-capita resources. A considerable portion of its GDP is achieved by sacrificing the benefits of posterity.

Professor Ma Zhong from the Renmin University of China, a well-known environmental scholar, said that GDP is the most important indicator for economic trend. The continuous high growth rate of China’s GDP for 25 years has greatly improved the material life of its people and enhanced the country’s international competitiveness. However, the calculation of GDP is only based on end products and services, excluding resource cost and environment cost. The blind pursuit of GDP growth has resulted in a grim situation in the country’s resources and environment. Such a method of development can hardly be sustained in the long run.

Under such circumstances, it is imperative to practice green GDP, which refers to the remaining part of current GDP after taking into account the costs of environment and resources as well as the expenses on protecting environment and resources. Including resource costs and environment costs in the national economy accounting system will promote the transformation of the extensive growth mode to an intensive growth mode, featuring low consumption, high utilization and low waste discharge.

The National Bureau of Statistics (NBS) and relevant departments, including the National Development and Reform Commission (NDRC), the State Forestry Administration and the State Environmental Protection Administration (SEPA), are intensifying research on the accounting system for green GDP in the light of national conditions, which will be used to calculate resource and environment costs in economic development. China will, initially, calculate the increase/decrease of such natural resources as energy, land and minerals.

Changes could easily be sensed in the statistical communique for 2003, released by the NBS on February 26. Together with GDP, data in relation to environment, resources and ecology were listed separately. Meanwhile, social developments with regard to science and technology and public health were also added.

Pan Yue, Vice Minister of the SEPA, disclosed recently that the Organization Department of the Communist Party of China (CPC) Central Committee now works with the SEPA to include the indicator of environmental protection in the official evaluation system. Though the new standard is in practice on a trial basis for the moment in some provinces such as Sichuan, Hebei and Shandong, it will eventually make the evaluation of government officials more scientific and comprehensive.

At the recently concluded Second Session of the 10th National People’s Congress (NPC), the Chinese Government decided to lower this year’s GDP growth to 7 percent. Ma Kai, Minister of NDRC, noted that China would devote more effort to seeking social progress. NPC deputy Qin Chijiang agreed, saying, “This is a reasonable figure, which indicates that China is turning away from its one-sided pursuit of GDP and trying to achieve all-round, coordinated and sustainable development.”

At the meetings of the local people’s congresses and local committees of the Chinese People’s Political Consultative Conference (CPPCC), GDP was no longer in the spotlight. Guangdong Province, which achieved a new high in GDP growth last year and is now in a new cycle of rapid economic growth, set its GDP growth at 9 percent this year, compared with the actual growth rate of 13.6 percent in 2003.

Narrowing the Gaps

“Now I earn 8.5 yuan ($1.03) a day. It is so hard to make a living with that. I don’t have high expectations; I would be satisfied if I could earn 1.5 yuan ($0.18) more a day,” said Wang Xiaomei, a cleaner at Daqing Oilfield, who has a child in college.

HARD EARNED REWARD: Industrious laborers contribute greatly to the country’s rapid economic growth. All their hard work will eventually be their benefits

Despite its high GDP growth rate over the past 25 years, various problems have cropped up from imbalanced economic and social development. Although the overall level of income has increased, the income gap keeps widening. People have begun to worry that the widening income gap will become a problem affecting social stability.

Zhao Zhenhua, Deputy Director of the Department of Economics in the Party School of the CPC Central Committee, indicated four aspects of the widening income gap:

First, the gap of individual incomes has widened. On one hand, due to reform and opening-up policies, more than 100 million people have shed their poverty shackles, with a few even becoming wealthy. On the other hand, at the end of 2002, there were 28.2 million rural people still living in poverty and more than 20 million urban people had to rely on various kinds of welfare for survival.

Second, the gap in income between urban and rural residents has expanded. In 2002, per-capita disposable income of urban residents was 7,703 yuan ($930), or 3.11 times the per-capita net income of rural residents, which was only 2,476 yuan ($299). If the various subsidies and benefits enjoyed by urban residents were taken into account, the actual income gap between urban and rural people would be wider.

Third, the income gap between different regions tends to widen. Since the adoption of reform and opening-up policies, people all across the country have seen substantial increase in their income. But people in the eastern region had the fastest increase in their incomes, followed by the central region. People in the western region had the slowest increase in their incomes.

And lastly, the income gap between different industries also tends to widen. In 1978, the disparity of income between the best-paying industry and the poorest-paying industry was 1.38 times. The figure, however, rose to more than six times in 2002. Well-paying industries are usually characterized by monopoly, which is usually formed through administrative means.

Of all the four facets, the urban-rural gap is the most evident. The slow increase in farmers’ incomes has aroused concerns of the entire society.

Research conducted by the CASS Institute of Economics revealed that the urban-rural per-capita income ratio rose from 2.8 in 1995 to 3.1 in 2002. Even though, the researchers believed that the actual income gap between urban and rural people is wider, because the disposable income of urban people didn’t include various subsidies they enjoyed.

For example, most urban residents enjoy medical services at the public’s expense, while no rural residents have such a benefit. Primary and secondary schools in urban areas can obtain large amounts of financial subsidies from the state, yet rural schools can hardly get any subsidies—farmers have to raise funds by themselves for the operation of schools. Urban residents enjoy pension insurance, unemployment insurance and subsistence allowance, which, however, are all beyond the access of rural residents.

Researchers estimated that the urban-rural income gap might be as wide as four to six times if all these factors are considered. No other country in the world has such a wide gap.

Yue Ximing, one of the researchers, said that the government should take measures to increase farmers’ incomes and narrow urban-rural disparities. He proposed three points.

First, the segmented labor market should be unified fundamentally so as to provide more employment opportunities to farmers. “The current household registration system is against the basic principle of a market economy,” he noted.

Second, taxes in rural areas should be reduced substantially. The reform of taxes and administrative charges in rural areas over the past few years has helped narrow the income gap, but the effect is quite limited. “If all the taxes and administrative charges on rural households were reduced or exempted, per-capita income of farmers would increase 5.4 percent. That means the income gap between urban and rural residents would be reduced by 13 percentage points,” said Yue.

Third, the state should render more support to rural areas in terms of tax and fiscal policies, and increase inputs in rural medical and education undertakings and in the social security for farmers. For instance, in some undeveloped poverty-stricken areas, the government should consider paying pensions to seniors over 65 years.

The Central Government has also become highly aware of the wide income gap between urban and rural residents. In February, the CPC Central Committee and the State Council issued a special document on increasing farmers’ income, the first of its kind since the founding of the People’s Republic of China in 1949.

Ma Kai revealed that this year, the government will try every possible means to increase farmers’ income so that the farmers’ per-capita net income can increase 5 percent, compared with the original target of 4 percent.

The pursuit of returns in a market economy will to a large extent increase the imbalance of distribution among people, which is an inherent defect of this economy itself, according to experts. However, it is the government’s responsibility to keep the income gap within a reasonable range—the government’s visible hand should mend the defects of the market’s invisible hand.

Low-income earners can see a glimpse of hope in Premier Wen Jiabao’s Report on the Work of the Government deliberated and passed at the Second Session of the 10th NPC. From the explicitly stated policies concerning raising farmers’ incomes, increasing agricultural production, establishing a sound health system, strengthening compulsory education, especially in rural areas, and promoting employment and reemployment, they can see the determination of the government in realizing balance and fairness.

While creating more wealth, efforts should be made to ensure that members of the society benefit from the wealth on a fair basis. Economist Xiao Zhuoji proposed the following four points at the recently concluded Second Session of the 10th CPPCC National Committee:

• To extend the coverage of social security and raise the standard of social security;

• To improve the housing conditions of low-income families and broaden the range of poverty alleviation for farmers;

• To raise the standard for subsistence allowance in urban areas and extend the coverage of subsistence allowance; and

• To care special and low-income groups and levy special consumption tax to replenish funds for subsistence allowance and poverty alleviation.

Hu Angang emphasized it is unrealistic for all regions to attain common prosperity overnight, as this should be a long-term goal requiring committed efforts.