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China and inclusive growth
Wednesday, 20 April 2011 04:48

Since 1978, the Chinese economy has been growing at breakneck speed.  But this stunning growth performance has come at a high cost as the gap between rich and poor has widened dramatically, the environment has suffered immense damage, and corruption by Chinese Communist Party officials is rife.  What’s more, this growth has not brought sufficient benefits to citizens, as it has been driven more by investment than consumption.


This is why under President HU Jintao’s leadership, China’s 12th Five Year Plan (2011-2015) is placing great emphasis on “inclusive growth”, the concept promoted by the Asian Development Bank (ADB).


According to the ADB, “Inclusive growth means growth with equal opportunities.  Inclusive growth therefore focuses on both creating opportunities and making those opportunities accessible to all.  Growth is inclusive when it allows all members of a society to participate in and contribute to the growth process on an equal basis regardless of their individual circumstances.” 


Why is inclusive growth so important?  First, it has an intrinsic value based on the belief that equal opportunity is a basic right.  And then it also has an instrumental role coming from the recognition that equal access to opportunities increases growth potential.  Inequality in opportunities leads to inefficient utilization of human and physical resources, lowers the quality of institutions and policies, erodes social cohesion, and increases social conflict.


What is the evidence on inclusive growth in emerging Asia?  The primary evidence of growth not being inclusive is that income inequalities have grown enormously, especially in countries like Nepal, China, Cambodia, Sri Lanka, Bangladesh, Laos, India, Korea, Taiwan, Vietnam, the Philippines and so on.  But it is not just income inequalities.  There are also persistent and growth inequalities in access to social services like education and health.


The ADB is particularly concerned about these trends.  Not only could such inequalities threaten development prospects, but they could also trigger social and political tensions, and even lead to armed conflict.  It claims that the increases in the gaps between “the rich and the poor and very visible changes in the consumption patterns and lifestyles of the rich are leading to a perceptible increase in social and political tensions”. 


So what are the ingredients of successful inclusive growth policies?  First of all, there is the need to generate high and sustainable growth.  But equally important is the need to promote social inclusion by:

(i)  investing in education, health, and other social services to expand human capacities, especially of the disadvantaged:

(ii) promoting social and economic justice by ensuring that certain members of society are not excluded from participating, contributing, and

benefiting from the new economic opportunities because of their individual circumstances, or because they do not belong to certain power groups

who control political and economic decision making; and

(iii)  providing social safety nets to mitigate the effects of external and transitory livelihood shocks created by ill health, financial crises, industrial

restructuring, and natural disasters.


In a brilliant speech in September last year entitled “Deepen Exchanges and Cooperation for Inclusive Growth”, Chinese President HU said:


“China is a strong supporter and follower of inclusive growth, a concept that is consistent with our pursuit of scientific development and social harmony …The ultimate purpose of inclusive growth is to spread the benefits of economic globalization and economic development among all countries, regions and people and to realize balanced economic and social progress through sustainable development …We should pursue social equity and justice…


To this end, we must ensure everyone equal access to development opportunities, steadily put in place a system for guaranteeing social equity with a focus on ensuring fairness in rights, opportunities, rules and distribution, and eradicate obstacles that keep our people from participating in economic development or sharing the fruits of economic development. We should put people first, ensure and improve people's livelihood, institute a social safety net that covers all, and address issues vital to people's livelihood, including education, labor and employment, health care, old-age support and housing. We should work hard to ensure that development is for the people and by the people and its fruits are shared among the people.”


The concept of inclusive growth is very much at the center of China’s 12th Five Year Plan (2011-2015) which was passed on 14 March 2011, and is an attempt to transform China’s economic and social development model.  It seeks to: address rising inequality and create an environment for more sustainable growth by prioritizing more equitable wealth distribution, increased domestic consumption, and improved social infrastructure and social safety nets.


The Plan is representative of China's efforts to rebalance its economy, shifting emphasis from investment toward consumption and from urban and coastal growth toward rural and inland development. The Plan also continues to advocate objectives set out in the Eleventh Five-Year Plan to enhance environmental protection, accelerate the process of opening and reform, and emphasize Hong Kong's role as a center of international finance.


And just last week, Chinese President Hu Jintao again called for inclusive development at the Boao Forum for Asia.  He said:


“As the trend toward multi-polarity and economic globalization deepens, the people of Asia have the major task of maintaining both development and stability … Asians belong to one family … the people of Asia have a shared mission to promote common development and build a harmonious Asia …Asian countries should respect diversity of civilization and promote good-neighborly relations … We need to translate the diversity of our region into a driving force for more dynamic exchanges and cooperation, increase mutual understanding and trust, and take our cooperation to higher levels … Asian countries need to transform their economic development pattern in keeping with global trends, restructure their economies, build capacity for scientific and technological innovation, and develop the green economy …


We need to focus on both the speed and quality of development, and ensure both efficiency and quality … We need to integrate our effort to develop the economy with that to improve people’ s well-being, and achieve coordinated economic and social development … Asian countries need also to share development opportunities and meet challenges together …Large countries should support small ones, rich countries should help poor ones and all should help each other so as to seize opportunities and tackle challenges together.”


Over 30 years ago, then Chinese leader DENG Xiaoping argued that for the Chinese Communist party to survive, it basically had to launch capitalist, free market policies.  He sought to maintain the Communist Party oligarchy’s control over China’s politics while also seeking a better life for China’s people, and was guided by two principles: (i) be pragmatic (“what matters is not whether the cat is red or white, what matters is whether the cat catches mice), and (ii) be cautious (“cross the river by feeling for the stones at the bottom of the ford with your feet”)”


Deng also said “Let some people and some regions get rich first”.  It seems clear that it now time to move on from Deng’s latter advice.  For the Party to continue to survive and avoid a ‘jasmine revolution’, like those sweeping North Africa, it needs policies designed promoted inclusive growth and a harmonious society.


One day however, the Chinese Communist Party will not be able to avoid giving Chinese citizens some political freedom.  The Communist Party has survived the past three decades by becoming capitalist.  In the next phase of China’s development, it will have to become democratic.  That will be a challenge!  



Asian Development Bank.  Inclusive Growth toward a Prosperous Asia: Policy Implications, Ifzal Ali and Juzhong Zhuang.  July 2007.  ERD Working Paper Series No.97



Deepen Exchanges and Cooperation for Inclusive Growth Address by President Hu Jintao At the Fifth APEC Human Resources Development Ministerial Meeting



Chinese president calls for inclusive development in Asia




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