World Energy Outlook 2007

SPOTLIGHT
Will Government Efforts to Adjust
China’s Economic Structure Work?
There is a growing consensus in China and externally on the need for
China to “adjust” its economic growth towards more labour-intensive
industries and services and away from resource- and capital-intensive
manufacturing. This would make growth in the use of energy and other
natural resources less intensive, less damaging for the environment, more
evenly distributed and driven more by domestic demand (World Bank,
2007c). Such a change could raise the long-term rate of growth in GDP
and raise productivity. Private consumption, government consumption
and exports of services and high-value manufactured goods could grow
faster to offset an investment slow-down. New investment opportunities
could come through sustained gains in domestic consumption, as opposed
to exports.
The Chinese government is committed to adjusting the structure of the
economy through a series of measures, consistent with the 11 th Five-Year
Plan. In 2006, the government cut income taxes, abolished agricultural
taxes and introduced subsidies to grain producers in an effort to boost
consumption. Other measures (detailed earlier in this chapter) aim to
reduce China’s propensity for over-investment. The government’s 2007
Work Plan, presented at the annual session of the NPC in March 2007,
includes several new initiatives. These include unification of the
corporate income tax rates for both domestic and foreign businesses at a
low level, a property law and big increases in government spending on
education, health and rural development. The government has also
introduced measures to reduce corporate and government savings and to
redirect funds to households. Reform of the household registration system
has begun and a labour contract law was passed in June 2007. That could
lead to an increase in industrial wage rates, thereby stimulating
consumption.
These policies will undoubtedly affect the pattern of growth in the long
term but there are significant barriers to their implementation. Local
governments in the less developed parts of the country are not always
willing or able to put reforms into practice, because of the sheer scale of the
administration involved and strong pressure to replicate the success of
industrialisation in the coastal provinces. The central government has been
developing various incentives and penalties to consolidate the heavy
manufacturing sector, which has become fragmented as a result of local
efforts to promote industrial champions.
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Chapter 7 - Political, Economic and Demographic Context 253