Why is China making another five-year plan ?

An interesting tidbit out of Xinhua Tuesday posed the following question: If China is moving to a market economy, why does it need to develop another five-year national plan?

It seems like an obvious question, but not from the official press agency of the People’s Republic of China. Of course, Xinhua ends up finding a way to justify the meeting at the end of October when the leaders of China’s Communist Party create a plan for the next five years.

Statue of Mao in Lijiang, China

Statue of Mao in Lijiang, China

“China’s five-year plans are basically a series of social and economic development initiatives that came into being along with the socialist regime in the middle of the last century. Concerned mainly with government development priorities and growth targets, the plans are a guide for Chinese regulators,” said Xinhua.

Well, up until about a decade ago, the guide was more of a policy to be followed.

Critics quite correctly point out that governments can’t “plan” an economy and this kind of exercise is a key characteristic of centralized economies, which run counter to the market.

So why, is the world’s second-largest economy, which has made a big deal out of letting the market play a “decisive” role, still clinging to a national plan?

Xinhua pointed out that the free market isn’t right all the time, as shown by the fact modern economies still have recessions on a regular basis.

“China has relied on a strong government steering its economy for over 60 years, so it would be unwise not to draw on a tradition that has proven effective in the last few decades, especially with the economy at a crux of upgrades and changes of emphasis,” Xinhua said answering its own question.

Xinhua also asked if capitalist economies are willing to accept government help when economies need rescuing, why is this discouraged in good times?

It’s actually an important question. The mantra of free markets is a bit of a sham anyway. Everyone wants a free market for their goods in other countries, but not so much for imported goods competing with domestic industries.

And the US bank bailout of 2009 has been called by many “socialism for the rich.” If it were a truly free capitalistic market why weren’t bankrupt banks allowed to fail and close?

And how often have we heard that a major problem of the US and other western economies is their obsession with short-term goals?

There have been many calls for corporate America to focus more on long-term goals, and give things time to grow, but the fact is companies and stock prices live and die by the quarterly report.

As China moves into a market economy in fits and starts, there’s no need to remove the training wheels just yet.

“An economic plan does not mean a backing-off from the market economy nor stronger intervention by the state. Rather than a script, it is an extensive agenda of support. The plan may be more micro and specific than the goals set by European and American governments, but such an approach suits the developing economy,” said Xinhua. “The five-year plan offers investors, home and abroad, a chance to see the government’s priorities and make better plans themselves.”



Categories: Asia Unhedged, China

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