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China is now focusing on electric cars, deep space exploration, aero-engines, robotics and nuclear power to restructure its economy
China is targeting growth of about 6.5-7 per cent this year, in tune with an effort to transition from a low-end manufacturing and exports nation to a self-sustaining economy based on innovation and consumption.
While presenting his work report on Saturday at the start of an annual session of the National People’s Conference (NPC) — China’s legislature — Chinese Prime Minister Li Keqiang said Beijing was taking measures to avoid falling into a “middle income” trap. The term refers to the inability of many countries, starting from a low base, to transition to developed status after experiencing years of high economic growth.
Fiscal deficit has been calibrated to 3 per cent of the GDP this year, up from last year’s 2.3 per cent of the GDP, Mr. Li said. That figure, expected to stand at $335 billion is the highest since economic reforms began in 1979.
The fiscal stimulus is expected to focus on tax breaks for small businesses, especially in the fast-growing services sector, seen among the major drivers of the restructured “new normal” economy. Out of a total workforce of over 900 million, more than 100 million—the core of an innovation-based economy-- have received higher education or are professionally trained. “This is our greatest resource and strength,” Mr. Li said.
China is now focusing on electric cars, deep space exploration, aero-engines, robotics and nuclear power, and the services industry, such as healthcare to restructure its economy. But significant amount of capital would also be invested in new roads, especially in the less developed southern provinces, and high speed railways. The Chinese Premier said that “zombie enterprises,” or inefficient units, especially in the coal, steel and heavy industry sectors are likely to be axed, in tune with an emphasis on mergers and consolidation of state-owned enterprises.
According to official estimates, 1.8 million workers are expected to face retrenchment over the next five years in the coal and steel sectors, which have recorded high credit-fuelled overcapacity. Mr. Li said that more than $15 billion was being earmarked for the next two years as a safety net to tackle the resulting unemployment.
Analysts point out that the anticipated lay-offs, though substantial, were still only a fraction of what China had experienced in the late nineties under the stewardship of former Prime Minister Zhu Rongji. Almost 30 million workers were laid-off then, hundreds of state-owned enterprises were privatised and thousands more were shut down.
A day ahead of the NPC session, President Xi Jinping, had made it clear that despite the focus on reforms, the basic economic parameters established under the watch of the Communist Party of China (CPC) would remain the same.
In a panel discussion with political advisors from the China Democratic National Construction Association and the All-China Federation of Industry and Commerce, President Xi said that China should stick to its basic socialist economic system while strengthening and developing both public and non-public sectors of the economy.
Mr. Li acknowledged that transforming the Chinese economy would be far from easy, in a world witnessing weak growth in trade, and experiencing fluctuations in financial and commodity markets, whose impact should not be underestimated.
“Pursuing development is like sailing against the current: you either forge ahead or drift downstream,” Mr. Li observed. But he added that with 2010 as the benchmark, the government was committed to doubling the size of the economy by 2020, when the 13th five-year plan concludes.