Will the Chinese Government Deliver on the New Five-Year Plan?

Forbes: Helen H. Wang
China Premier Wen Jiabao deliver the Report on...

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With an iron fist to rule out any source of instability, the Chinese government is determined to set the country on the right path. The new five-year plan, unveiled at the National People’s Congress session in Beijing this past week, set ambitious goals for what China would like to achieve in 2015: move to more evenly distributed incomes, a greener environment, and higher up the value chain for its industry.

At the heart of the five-year plan is a focus on boosting domestic consumption and restructuring its economy toward more sustained growth. The plan addresses two critical issues that are of paramount importance to China’s fledging middle class: inflation and affordable housing.

Since last year, the Chinese economy has shown signs of overheating due to the extensive government investment in infrastructure. Food prices rose sharply at 11 percent in February, creating much public anxiety. Skyrocketing real estate prices are like a dagger in the heart of the new middle class who see their dreams of owning homes as unattainable.

The new five-year plan aims to lower GDP growth to 7 percent in an effort to tame inflation. The government also plans to build 36 million affordable homes in the next five years. Premier Wen Jiabao repeatedly stated that improving people’s livelihood is the top priority of the government.  All these measures are intended to address the root problems of public discontent and help maintain social stability.

Reigning in inflation and providing affordable housing are important steps to foster a growing middle class. A major hindrance to increased Chinese consumption, however, is the country’s high saving rate, which reflects the underlying insecurity the Chinese feel about their future.

In writing my book The Chinese Dream: The Rise of the World’s Largest Middle Class and What It Means to You, I interviewed over 100 people in China. They are from all walks of life and are the new members of the Chinese middle class. The biggest concern they have is social security.  Most people I talked to save 25-50 percent of their incomes for a rainy day, as I wrote here.

Victor Ku, a hotel manager in Guangzhou, told me that he had to save two-thirds of his income. “I have to pay for my own health expenses,” he said. “In China, we don’t have security. If you get sick, you can immediately become poor.”

In 2009, the Chinese government announced a plan to spend $124 billion to overhaul the country’s broken healthcare system. Since then, the government has increased insurance coverage in rural areas and allocated funding to build more community clinics.

However, the underlying problems remain as hospitals continue to rely on revenues from drug sales and expensive treatments. World Bank research shows that more than 40 percent of healthcare spending in China goes to purchasing medicine, a disproportionately high amount compared to other countries.

Which leads to another problem that the government has not been able to successfully address: corruption. Corruption is so endemic in Chinese society that it has become a national ill. It ultimately reflects a system that lacks the function of cross-checks, and is a major source of social instability that the government is so firmly intent to prevent.

Stephen Roach, former chairman of Morgan Stanley Asia, believes that the new five-year plan will “spark the greatest consumption story in modern history.”

The next five years will be crucial for China to develop a larger and more stable middle class. Will the government achieve all the goals set out in the plan? Most likely. Judging from its past performance, I would not underestimate the Chinese government’s ability to deliver. Will China become a more open society? Sooner or later, when the Chinese government sees it is in its own interest to let go of control.

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INSEAD Speaker Event: The Chinese Dream

I will be speaking to the Insead Alumni Association on April 4 in Palo Alto about my new book The Chinese Dream, and discussing following topics:

  • What does China’s rapidly growing middle class mean for you and your job?
  • Secrets of succeeding in China, opportunities and pitfalls
  • Will the Chinese middle class push for democracy?

Please join me to discuss one of the most dynamic forces shaping our world today. Event RSVP: http://inseadsv-speaker-chinese-dream.eventbrite.com/

Watch the video (2 min.):

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Will China’s Consumer Driven Middle Class Become the Saving Grace for America’s Economic Woes?

Surprisingly, The Chinese Dream may just turn out to be the American Dream.

PALO ALTO, Calif. March 14, 2011 – Helen Wang, the author of The Chinese Dream: The Rise of the World’s Largest Middle Class and What It Means to You will speak to The INSEAD Alumni Association of Northern California on April 4, 2011 in Palo Alto about the challenges and opportunities of a rising Chinese middle class. Continue reading

China Is No Libya but Not Out of Danger

Forbes: Helen H. Wang

Watching the waves of demonstrations from Egypt to Libya and beyond, I couldn’t help thinking what might happen to China. There is no lack of discussions in the blogosphere about whether China would be the next Egypt or Libya. Popular views seem to suggest that China is not Egypt, that most people in China are happy since their lives have been dramatically improved in recent years, and they are not paying attention to what’s happening in the Arabic world because they are busy with getting on with their own lives.

If the average Chinese has not paid enough attention to what is happening in Africa, the Chinese government certainly has. Last Saturday, Chinese president Hu Jintao called for tighter government control of the Internet. Discussions of Egypt are blocked in China’s cyberspace. When an anonymous call for a “Jasmine Revolution” in China was posted on the U.S.-based Chinese language website Boxun, an overwhelming number of Chinese security officials showed up at the protest locations for fear of large demonstrations and chaos.

The Chinese government’s adamancy to maintain social stability revealed how unstable China may be. As government official Chen Jiping told Reuters, “Our country is in a period of magnified conflicts within the populace, high crime rates and complex struggle against foes.”

Yes, China is not Egypt. Although it is still under one-party rule, China does not have dictators such as Mubarak who ruled Egypt for over 30 years. Nor does China have a lunatic ruler like Gadhafi. Since 1992, China’s leadership has transferred power from one cabinet to another smoothly without power struggles. President Hu Jintao rules by consensus in China’s 9-person politburo.

In the past three decades, China’s phenomenal economic growth lifted hundreds of millions of people out of poverty, and created a middle class that supports what the government has done. Many believe that the government is improving and has become more open. They understand that China is a big country with complex problems, and they are willing to give the government some time.  Some people told me that they couldn’t care less about democracy because they have all the freedom they want and have more opportunities than they can pay attention to.

However, the last few years saw a regression in the government’s openness. Since 2008, the Chinese government has increasingly censored the Internet, detained dissidents, and disbarred lawyers who are actively involved in civil rights and corruption cases.

If the government thinks the tightened control will help maintain stability, it will prove to be the opposite. The demonstrations in the Middle East provide a clear case that the more repressive the regime, the more chaos and protests it will brew.

Instead of tightening control, the Chinese government should address the root problems of discontent, such as by fighting corruption and inflation, and create conditions that allow upward mobility.

I hope China will not be the next Libya. A stable China is not only in the interest of the Chinese people, but also in the interest of the people of the world. China has become so interrelated and interconnected to the rest of the world. Foreign direct investment reached $106 billion in the end of 2010. Many Western companies are betting on the Chinese market for their revenue growth, especially since their home markets stagnated during the recession.

Perhaps now is the time for the Chinese government to let go of control. A nation cannot be truly prosperous if its people cannot freely express themselves. The Chinese people know that, as many have told me, “the trend of democracy is unstoppable.” The Chinese government should know it too.

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