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News Analysis: China five-year plan to chart reform, growth path

Xinhua, October 28, 2015 Adjust font size:

China is mulling the 13th five-year plan, which will chart its reform and growth path, when the country is entering a "new normal" of slower growth and boosting re-balancing towards consumption and services.

The new five-year period from 2016 to 2020 will be key for reforms, which can facilitate economic growth, including reforms on tax and fiscal policy, state-owned enterprises and finance, according to China International Capital Corporation (CICC), one of China's leading investment banks.

Leaders of the Communist Party of China (CPC) met in Beijing on Monday for a four-day meeting to discuss changes, while the fifth plenary session of the 18th CPC Central Committee will review proposals for the five-year plan. After taking into account the proposals, a final plan will be ratified by the annual session of China's top legislature in March 2016.

The biggest challenge for the 13th five-year plan may be capping the runaway financial sector without hammering growth, according to Bloomberg research.

More financial market reforms are expected to be included in the new plan to encourage risk-taking and stoke growth for small and medium businesses.

Non-traditional financial services may be allowed a greater role in the economy to cut reliance on the state-owned mega-banks and their traditional deposit taking and lending function, it forecast.

Newly-packaged financial intermediation services such as peer-to-peer lending, crowd funding, Internet-based financing, asset securitization, derivatives and corporate bonds are likely to be a regulatory focus and encouraged, it said.

The more meaningful function of the meetings is prioritization of various policy targets, especially considering China's economic growth has continued to decelerate, settling at 6.9 percent during the third quarter of this year, said Zhu Haibin, chief economist for J.P. Morgan China.

Like in previous five-year plans, a GDP growth target is likely to be included. The market estimates the growth target for 2016-2020 will be put between 6.5 and 7 percent.

The market interprets the growth target as an important indicator of how leaders will prioritize growth and structural re-balancing, Zhu said.

If the growth target is lowered to 6.5 percent, it implies the government will tolerate slower growth to leave more room for structural re-balancing. Accordingly, there will be less stimulus efforts by the government. If the target is left unchanged at 7 percent, it implies the government will have to maintain its loose policy stance and do more easing, and perhaps at the cost of structural re-balancing, Zhu said.

Not surprisingly, no one seems to consider a growth target below 6.5 percent, as China's target to double GDP between 2010 and 2020 will require the average GDP growth in 2016-2020 to be 6.5 percent, he added.

The previous five-year plan in 2011-2015 set an average annual growth target of around 7 percent. Between 2011 and 2014, the economy expanded by an annual rate of 8 percent. Endi