As central government and high-level party committees issued drafts of the 12th Five-year Plan in late October, journalists from the EO's News Department decided to evaluate the performance of several important central ministries against the targets and strategic goals they were set as part of the previous five-year programme which covered the period from 2006 to 2010.

The architects of China's 11th Five-year plan actually made a deliberate point of switcing the name of the economic guidlines from the former term "plan" (計(jì)劃 jìhuà) to the softer sounding "guidleines" or "program" (規(guī)劃 guīhuà) when they drafted the eleventh Five-year Program (十一個(gè)五年規(guī)劃) in 2005. They were aiming to move away from the associations with state planning and hard production targets that the earlier Five-year Plans had towards establishing a softer, longer-range programme or strategy. The new terminology has been maintained for the coming 12th Five-year Program (十二個(gè)五年規(guī)劃). Despite this official change in terminology, the phrase Five-year Plan has remained in common usage in English-language reports. In the following feature we have continued to refer to both the 11th and 12th Five-year Plans.

Monopolies are Blocking the Path to Reform
By Zhang Xiandong
News, Page 5
Issue 491, October 25, 2010 
Translated by Leslie Walczak
Original article: [Chinese]

Four years ago, the National Development and Reform Commission (NDRC) issued a 16,000-character program that attempted to map China's economic development through to the year 2010. The 11th Five-year Plan identified fourteen economic targets, eight of which were binding. As the deadline for reaching these targets approaches, the question of whether the country will meet all of these goals is worth investigating.

Of the 14 proposed targets, the primary objectives were annual GDP growth of 7.5 percent, annual per capita GDP growth of 6.6 percent and average income growth of 5 percent. In 2008, Zhang Ping, the head of the NDRC, announced a midterm assessment of the 11th Five-year Plan. The assessment found that along with the desired rate of urbanization, three other indicators were also below expectations, namely: increasing the proportion of value-added services by 3 percent over 5 years, increading the number of people employed in the service industry in proportion to total employment by 4 percent and increasing the portion of domestic GDP dedicated to research expenditure. The other ten indicators were found to either be on target or even exceeding expectations.

Ren Wangbing, director of the service industry office at the Academy for Macroeconomic Research's (a think tank under the NDRC) Institute of Industrial and Technological Economics Research, told the Economic Observer that nearly every Five-year Plan will have one or two targets that are not reached - the targets set in relation to development of the country's service industry appears to be one of the missed targets this time around.

Professor Ren argues that in order for China's service industry to achieve rapid growth, monopolies have to be broken up.

In fact, the breaking up of monopolies will not only lead to the development of China's service industry - it's also of fundamental importance to the  development of the domestic petrochemical, telecommunications, energy, salt, tobacco and several other industries. Breaking up the monopolies will also impact on reforms to China's system of investment, be critical to the expansion of private investment and at the same time it's already at the heart of efforts to reform the distribution of income. All these factors will finally determine the direction of China's economic development.

Throughout the period of the 11th Five-year Plan, the NDRC has repeatedly emphasized the importance of eliminating monopolies in order to push ahead with the development of the service industry. However, little progress has been made. The salt industry has been mulling organizational reform for three years, but thus far there is little sign of progress. A shake-up of China's energy sector has faced even more difficulties getting off the ground.

The 11th Five-year Plan also stated that more efforts would be made to speed up the separation of electrical power distribution networks, to encourage the construction of regional power markets, continue to expand pilot programs that encourage large energy consumers to trade directly with energy producers and also gradually separate out energy distribution from transmission. However, energy network analyst Han Xiaoping says that over these past five years, China's energy industry has not made the slightest progress in regards to reorganization of the current system, and in fact, it appears to have regressed in some areas. The same is true of the petroleum industry where the private sector is still in the same old position of being a "bit player." 

Despite the 11th Five-year Plan's focus on income distribution reform, progress is still restricted by the presence of industrial monopolies. Although the income growth rate of Chinese citizens has persistently increased and the stated per capita target of 5 percent annual income growth will probably be attained, it is a widely recognised that the disparity between the incomes of rural and urban residents continues to grow. 

Monopolies have also made it difficult to make progress with price reforms outlined in the plan. The 11th Five-year Plan proposed that China would progressively restructure the system for setting prices for refined oil products, would increase the flexibility of natural gas prices and possibly introduce preferential pricing for renewable energy.  However, Han Xiaoping told the EO that every step of the recent energy industry reforms have been based on the result of negotiations between the government and a few monopoly enterprises.

On April 28 this year, when the State Council passed "Ideas on Important Work for the Deepening of Systemic Economic Reform in 2010," they emphasized three crucial areas: the need to rapidly reform monopoly enterprises, price reform and income distribution reform. The State Council said that these three reforms not only determine whether the goals set as part of the 11th Five-year Plan will be met, but may also affect the smooth implementation of the 12th Five-year Plan. 
 
Ministry of Environmental Protection
By Yu Huapeng
News, Page 5
Issue 491, October 25, 2010    
Translated by Leslie Walczak
Original article: [Chinese]

The 11th Five-year Plan contains three types of binding emissions reduction targets. The first is a target of reducing energy consumption by 20 percent per unit of GDP, the second and third are to reduce sulfur and chemical oxygen demand (COD) emissions by 10 percent each. In 2009, COD emissions dropped by 9.66 percent and sulfur emissions fell by 13.14 percent. It is estimated that an additional 75,000 tons of COD emissions can be eliminated by the end of 2010, meaning that the COD target will also be met.

Over the first four years of the 11th Five-year Plan, the entire country has phased out more than 6,000 million kilowatts worth of small thermal power units and other outdated and heavily polluting industrial facilities. However, energy efficiency contributes only 30 to 40 percent to total energy-savings, more energy-saving technology is needed.

By the end of 2009, energy consumption per unit of economic output was down by only 15.61 percent, with further reductions of only 3-5 percent anticipated for 2010. Currently, there are a few provinces that have already exceeded their energy efficiency targets, there are another 18 provinces that are on track to meet their goals - but there are also 5 or 6 provinces that face difficulties in meeting their targets.  

Ministry of Health 
By Wen Shuping 
News, Page 5
Issue 491, October 25, 2010    
Translated by Leslie Walczak
Original article: [Chinese]

In the last year, the Ministry of Health was finally able to achieve its goal of lowering drug prices. Following the introduction of a generic drugs list, average drug prices have decreased by between 25 and 50 percent. However, in regards to the 11th Five-year Plan's goal of resolving the financial difficulties that ordinary people confront when seeking medical treatment, the price of medicine accounts for just one small part of the problem. Following the reforms to the medical sector in the 1980s, hospitals were pushed to adapt to a market environment. Now cash flows are autonomously managed, government subsidies have been removed and hospitals have become accustomed to earning money in order to sustain themselves. The price of medical treatment has rapidly increased, making it very difficult for ordinary people to afford treatment at a hospital.

The 11th Five-year Plan not only focused on reforming the country's pharmaceutical pricing system, but also required the government to invest more in public medical facilities and to open up drug contracts to competitive bidding. The ministry cancelled the 15 percent margin that hospitals were charging on top of the wholesale price of drugs and also started providing subsidies to the hospitals for the subsequent loss in revenue - gradually shifting away from a model which saw profits from the sales of medicine act as a major source of income for hospitals. All of these recently-introduced policies have the potential to reduce the aggregate amount spent on drugs by ordinary people nationwide by nearly 70 billion yuan. Medical reforms over the past 5 years have required all levels of government to invest a total of 850 billion yuan, 331.8 billion of which comes from the central government coffers. However, due to a lack of fiscal revenue in some areas, local government contributions have not always been forthcoming. Although ordinary people are now starting to realize the benefits of lower drug prices, whether these lower prices can be maintained is yet to be seen. 

Zhang Wenkui , head of the State Council's Development Research Center, recently urged the central government to push ahead with a new round of reforms of state-owned enterprises. The goal of these reforms should be privatization, thus shrinking the size of the state-owned economy. The timeline for these reforms should be five years.

This feature was edited by Paul Pennay

Links and Sources
The Economic Observer: Special Feature (Chinese)
NDRC: The 11th Five-Year Plan: targets, paths and policy orientation
The Economist: China's economy: A new epic
China Internet Information Center: Special Feature Covering the 1st to 10th Five-year Plans (Chinese)