China's premier promises more consumer-driven growth; no word on fate of big state companies

BEIJING, China – Premier Wen Jiabao on Tuesday pledged to transform China into a consumer-driven economy but gave no indication what Beijing will do about big state companies that reformers warn could handicap future growth.

Wen, speaking to China’s ceremonial legislature, confirmed a 7.5 per cent growth target in an annual economic plan. That is below the double-digit rates of the past decade but in line with Communist Party plans for a rebalancing of the world’s second-largest economy away from reliance on trade and investment to drive growth.

Wen steps down next week after 10 years as China’s top economic official but the goals he announced are part of a long-range plan incoming leaders under the newly installed party general secretary, Xi Jinping, are expected to adhere to.

“We should energetically change the growth model and speed up structural adjustment of industry,” said Wen. “We should enhance people’s ability to consume.”

Promoting consumer spending would both support more self-sustaining growth and boost living standards for ordinary Chinese, who have been treated until now as a source of labour while an elite reaped most of the benefits of explosive growth.

The government is pressing companies to raise wages and pledged in January to narrow China’s huge gap between the elite and its poor majority. But consumer spending is growing more slowly than authorities want, which has forced Beijing to rely on government -financed investment to support its recovery from an economic slowdown.

Wen gave no details of how Beijing will promote consumption but also promised efforts to clean up China’s battered environment and promote energy conservation. Both goals have high-level party support but will hurt corporate profits, possibly generating resistance from business leaders and their allies in the party.

Wen promised to give market forces a bigger role in the state-dominated economy but gave no indication how Beijing will deal with giant state companies that control most of China’s industries and are shielded from foreign and private sector competition.

The premier repeated government pledges to give private companies a “level playing field” and “equal access to factors of production” — a reference to bank loans and other resources. Despite such promises in the past, most lending still goes to state companies, which also receive low-cost access to energy and land.

Advisers including the World Bank have warned China must curb the dominance of state industry, promote competition and support entrepreneurs who generate its new jobs and wealth. In a report last year, the World Bank and a Cabinet think-tank warned that without quick action, growth could decline to 5 per cent by 2015 — dangerously low by Chinese standards.

The Communist Party sees state companies both as potential tools to drive economic development and as a source of money and jobs to help keep the party in power, which will make change politically difficult.