imageReport No. 46355-CN
Mid-term Evaluation of China’s 11th Five Year Plan
December 18, 2008
Poverty Reduction and Economic Management Unit
East Asia and Pacific Region
FOR OFFICIAL USE ONLY
Document of the World Bank
__________________
This document has a restricted distribution and may be used by recipients only in the performance of their official
duties. Its contents may not otherwise be disclosed without written authorization from the World Bank.
CURRENCY EQUIVALENTS
(As of December 18, 2008)
Currency
Currency Unit
US$1.00
=
=
=
Renminbi
Yuan (CNY)
RMB 6.845
FISCAL YEAR
January 1- December 31
WEIGHTS AND MEASURES
Metric System
ABBREVIATIONS AND ACRONYMS
5YP
BMI
BRICs
CHCs
COD
CPI
EFA
IVDP
LICs
MA
M&E
MDG
MEP
MICs
MOCA
MOF
MOLSS/
(MOHRSS)
NCH
NCMS
NDRC
OECD
PBOC
PPI
R&D
SAT
SO2
URBMI
- Five Year Plan
- Basic Medical Insurance
- Brazil, Russia, India, China
- Community Health Centers
- Chemical Oxygen Demand
- Consumer Price Index
- Education for All
- Integrated Village Development Program
- Low Income Countries
- Medical Assistance
- Monitoring and Evaluation
- Millennium Development Goal
- Ministry of Environment Protection
- Middle Income Countries
- Ministry of Civil Affairs
- Ministry of Finance
- Ministry of Labor and Social Security/Ministry of Human Resources
and Social Security
- National Commission on Health
- New Rural Cooperative Medical System
- National Development and Reform Commission
- Organization for Economic Co-operation and Development
- People’s Bank of China
- Producer Price Index
- Research and Development
- State Administration of Taxation
- Sulphur Dioxide
- Urban Residents Basic Medical Insurance
Vice President:
Country Director:
Sector Director:
Task Team Leader:
Jim Adams
David Dollar
Vikram Nehru
Louis Kuijs
Acknowledgements
This mid term review was prepared at the request of the Strategic Planning Department
(SPD) of China’s National Development and Research Commission (NDRC). A
summary report based on the draft executive summary was presented to the SPD in early
July 2008 and a draft full report in early October 2008.
The task manager is Louis Kuijs. The evaluations were done by the following World
Bank staff members: Louis Kuijs (Chapters 1 and 2), Chunlin Zhang (chapter 3); Jianping
Zhao (chapter 4); Sari Söderström and Luc Christiaensen (chapter 5), Xiaoqing Yu and
Minna Hahn Tong (chapter 6A), Shuo Zhang and Shiyong Wang (chapter 6B), and
Liping Xiao (chapter 6C), and Andres Liebenthal and Xin Ren (chapter 7). Wanda Tseng
provided much appreciated guidance and feedback on the overall evaluation approach
and individual chapters and also co-authored the Executive Summary. Andres Liebenthal
also gave valued guidance to the overall evaluation approach.
Skillful research assistance was provided by Chenjie Liu and Gao Xu. Jianqing Chen
provided crucial assistance and formatted and compiled the report. Li Ouyang provided
crucial assistance throughout the project.
Several consultants provided welcome inputs and background information for several of
the chapters, including Jianlong Yang, Research Fellow at the Development Research
Center of the State Council (Chapter 3), Professor Lin Wanlong, China Agricultural
University (Chapter 5), who also commented on the main text. For Chapter 6, helpful
information gathering was done by Rong Mo, Shaomin Cui, Qinyi Yu on social
protection, Dai Tao on health and Ping Zhu on education.
Valuable comments and advice were provided at different stages by many collegues and
other people. Special thanks go out to Deepak Bhattasali, Vivek Arora, and Shantong Li,
who were peer reviewers of the concept note, and Pieter Bottelier, Nicholas Hope, and
Shahid Yusuf, who were peer reviewers of the main report. Messrs. Bottelier and Hope
also gave much appreciated comments on the Executive Summary. DG Xu Lin of the
NDRC is thanked for valuable insight and guidance. Ardo Hansson gave much
appreciated comments.
Vikram Nehru, Sector Director and Acting Chief Economist, East Asia and Pacific
Region, and David Dollar, Country Director for China, provided overall guidance.
Mid-term Evaluation of China’s 11th Five Year Plan
Table of Contents
Executive Summary ........................................................................................................... i
1.
Introduction ............................................................................................................... 1
Situation and Developments Prior to the Start of the 11 th 5YP ....................................................... 1
The 11th 5YP .................................................................................................................................... 6
2.
Stable Operation of the Macro Economy and Improve Living Standards ....... 10
Situation and Developments pre 11th 5YP ......................................................................................10
Key Objectives in the 11th 5YP on “Stable Macro Economy”........................................................11
Key Initiatives and Developments ..................................................................................................11
How Have Macro Policies Evolved during the 11th 5YP? ..............................................................15
Emerging Issues and Assessment ...................................................................................................17
3.
Optimizing and Upgrading of the Industrial Structure ...................................... 20
Background and Key Objectives ....................................................................................................20
Progress with the Tasks of the 11th 5YP ........................................................................................22
Progress in Meeting the Overall Targets of the 11th 5YP ..............................................................26
Soundness of the Industrial Structure — How to Measure Progress over Time? ...........................28
Concluding Remarks ......................................................................................................................33
4.
Increasing Energy Efficiency ................................................................................. 35
Background and Key Objectives ....................................................................................................35
Main Initiatives ...............................................................................................................................38
Key Results Achieved So far ..........................................................................................................43
Conclusions and Lessons ................................................................................................................46
Recommendations ..........................................................................................................................48
5.
Coordinating Urban and Rural Development...................................................... 51
Background and Key Objectives ....................................................................................................51
Measures Taken and Key Results ...................................................................................................53
Emerging Themes and Recommendations......................................................................................67
6.
Improving Basic Public Services ........................................................................... 72
A. Social Protection .....................................................................................................................72
Background and Key Objectives .............................................................................................72
Overall Progress, Main Initiatives, and Key Results ...............................................................74
Analysis of results, Conclusions, and Main Challenges Ahead ..............................................84
B. Health Services ......................................................................................................................87
Background and Key Objectives .............................................................................................87
Main Initiatives and Overall Progress to Date ........................................................................89
Factors Affecting the Achievement of the Objectives.............................................................98
Conclusions and Lessons Learned ........................................................................................100
C. Education Development .......................................................................................................102
Background and Key Objectives ...........................................................................................102
Implementation Status of Main Tasks ...................................................................................103
Conclusions ...........................................................................................................................108
7.
Building a Resource Efficient and Environmentally Friendly Society ............ 111
Reducing Air, Water and Solid Waste Pollution ..........................................................................111
Water Resources Efficiency and Safety ........................................................................................119
Forestry and Eco-system Protection .............................................................................................122
Conclusions and Lessons ..............................................................................................................126
References ...................................................................................................................... 130
Figures
Figure 1
Figure 2
Figure 3
Figure 4
Figure 5
China’s GDP Per Capita Growth Has Been Very Rapid .................................................................. i
This Has Allowed China to Catch up with Other Countries ............................................................ i
China’s Capital-Intensive, Industry-led Economy in International Perspective 1/......................... iii
Industry Still Outpaces Services ................................................................................................... vii
Investment Still Outpaces Consumption ....................................................................................... vii
Figure 1.1 China’s Growth Performance is in a League of its Own .............................................................. 2
Figure 1.2 Human development also progressed ........................................................................................... 2
Figure 1.3 China’s Capital-Intensive, Industry-led Economy in International Perspective 1/....................... 4
Figure 2.1
Figure 2.2
Figure 2.3
Figure 2.4
Potential Growth Broadly Keeps Pace with Actual Growth .......................................................12
Overall Growth Target Seems in Easy Reach .............................................................................12
The Rise and Fall of Food Price Driven Inflation .......................................................................14
Although a Price-Wage Spiral is is Unlikely, Wage Growth has Remained Robust .................14
Figure 3.1 Share of Value-Added of Hi-Tech Industries in GDP, Realized and Targeted, 1995-2010 ...23
Figure 3.2 Percentage Shares of the Tertiary Industry in GDP and Total Employment, Realized and
Targeted, 2000-2010 ....................................................................................................................27
Figure 3.3 R&D Expenditure as Percentage of GDP, Realized and Targeted, 1995-2010 ...........................27
Figure 3.4 Labor Productivity in China’s Industry, 1998-2006....................................................................30
Figure 3.5 Capital Intensity in China’s Industry 1/ ......................................................................................30
Figure 3.6 Return to capital of Chinese Industrial Enterprises, 1998-2007 ..................................................31
Figure 3.7 Return to capital of Industrial SOEs and Non-SOEs (above cut-off scale), 1998-2007..............31
Figure 3.8 Growth of Fixed Assets, Output and Employment of Chinese Industrial Enterprises, 1998-2006
.......................................................................................................................................................................32
Figure 3.9 Growth of Fixed Assets, Output and Employment of Chinese Industrial SOEs (left) and NonSOEs (right), 1998-2006..............................................................................................................32
Figure 4.1 Oil price and domestic gasoline prices ........................................................................................41
Figure 5.1 Grain Production has risen to levels of the late 1990s with a slowdown since 2004 ..................64
Figure 5.2 Changes in cereal Land Allocation have dominated the decline (before 2004) and the increase
(after 2004) in cereal production .................................................................................................64
Figure 5.3 Sub-Sector Share of Agriculture .................................................................................................64
Figure 5.4 Rural income per capita growth accelerated further since 2005 ..................................................65
Figure 5.5 Urban income per capita growth was consistently higher, widening the gap ..............................65
Figure 5.6 Growth in agricultural GDP, agricultural prices, and agricultural output ...................................65
Figure 5.7 Growth of agricultural input and output prices ...........................................................................66
Figure 5.8 Urbanization ................................................................................................................................66
Figure 5.9 The Rural-Urban Income Gap .....................................................................................................66
Figure 6.1 Construction of National Total Health Expenditure ....................................................................99
Figure 6.2 Improvements in Life Expectancy and IMR Reduction in ........................................................101
Figure 7.1
Figure 7.2
Figure 7.3
Figure 7.4
Figure 7.5
SO2 Emissions - 20 Most Polluted Cities .................................................................................112
Monitored COD Discharge in China .........................................................................................113
SO2 Emission in China .............................................................................................................113
Comprehensive Utilization of ..................................................................................................113
Forest Coverage in China ..........................................................................................................122
Tables
Table 1 China's Progress in Meeting the Quantitative Indicators under the 11 th 5YP ................................... vi
Table 2 Indicators on the Macro Economy and Living Standards ............................................................... vii
Table 3 Social Indicators ............................................................................................................................... x
Table 4 Environmental Indicators ................................................................................................................ xi
Table 1.1 China in 2005 According to the 11 th 5YP Indicators ..................................................................... 3
Table 1.2 China’s 11th Five Year Plan ........................................................................................................... 7
Table 1.3 China's Progress in Meeting the Quantitative Indicators under the 11 th 5YP ................................ 9
Table 2.1 Macroeconomic Developments (2000-2005) ...............................................................................10
Table 2.2 Main Macroeconomic Indicators ..................................................................................................13
Table 2.3 Per Capita Household Incomes (growth, in percent) ....................................................................15
Table 3.1 Changes in the Shares of Tertiary Industry in GDP and Employment .........................................27
Table 3.2 China’s R&D Expenditure by Source of Funding, 2003-2006 .....................................................28
Table 3.3 Labor Productivity in China’s Industry, an International Comparison .........................................29
Table 4.1
Table 4.2
Table 4.3
Table 4.4
Table 4.5
Table 4.6
Table 4.7
Table 4.8
Table 4.9
Provincial Energy Intensity Reduction Targets during the 11 th 5YP Period ..............................37
Tax Rate Change for Selected Products (in percent) ....................................................................43
Quarterly Energy Intensity Rate in 2006 and 2007 ......................................................................43
Growth of Key Energy Intensive Products ...................................................................................44
Change in (Net) Export of Key Products ......................................................................................44
Closing Down of Inefficient Production Capacity .......................................................................45
Primary Energy Consumption (Mtce) ..........................................................................................46
Efficiency Improvement of Key Products ....................................................................................46
Energy Intensity Reduction (EIR) of Key Industries in 2007 .......................................................46
Table 5.1 11th 5-Year Program Target Indicators for the Balanced Rural-Urban Development ..................52
Table 5.2 Budgeted Central Government Spending on Agriculture and Rural Areas ..................................53
Table 5.3 Government Programs Supporting Agricultural Production ........................................................54
Table 5.4 Central Government Spending on Agriculture .............................................................................55
Table 5.5 Agricultural Subsidies ..................................................................................................................55
Table 5.6 Programs Supporting Agricultural Modernization .......................................................................56
Table 5.7 Labor Mobility Programs Are Strengthened ................................................................................59
Table 5.8 Targeted Poverty Reduction Projects ...........................................................................................59
Table 5.9 Central Government Funding for Poverty Reduction ...................................................................60
Table 5.10 NDRC Investments in Rural Infrastructure ................................................................................62
Table 5.11 Achievements as of 2007 of the Major Relevant Target Indicators............................................63
Table 5.12 Budgeted Central Government Spending on Agriculture and Rural Areas ................................67
Table 6.1
Table 6.2
Table 6.3
Table 6.4
Table 6.5
Table 6.6
Table 6.7
Table 6.8
Table 6.9
Social Protection - 11th 5YP Targets and Progress at Mid-Term..................................................74
Indicators for Urban and Rural Dibao, 2005-2007 .......................................................................79
Major Indicators on Disease Control ............................................................................................88
Health Protection - Targets and Progress .....................................................................................89
Progress Indicators on NCMS ......................................................................................................90
Indicators on MA ..........................................................................................................................92
Total Government Expenditure and Spending on Health .............................................................96
Central Government Health Spending(RMB billion) ...................................................................98
No. of Documents and Programs Launched in 2006-2007 .........................................................103
Table 6.10
Table 6.11
Table 6.12
Table 6.13
Table 7.1
Table 7.2
Table 7.3
Table 7.4
Key Indicators for Compulsory Education ...............................................................................104
Key Indicators of Vocational Education ...................................................................................106
Key Indicators of Higher Education .........................................................................................107
Inputs and Outputs ....................................................................................................................107
The 11th 5YP Targets and Progress Related to Pollution Reduction ..........................................116
Target and Progress Regarding Industrial Solid Wastes (billion tons) .......................................116
Water Use Per Unit of Industrial Value-Added ..........................................................................119
The 11th 5YP Targets and Progress Related to Water Resources ..............................................121
Annexes
Annex 1: Overview of Structure of the 11th 5YP........................................................................................132
Annex 2: Monitoring and Evaluation Framework .....................................................................................137
Annex 3: Progress in Implementing the 11th 5YP: Summary Results for 45 Tasks of Chapter 10, 11 and 13
.....................................................................................................................................................................138
Annex 4: “New Socialist Countryside” ......................................................................................................152
Annex 5: NDRC Investments in Agriculture and Rural Development .......................................................153
Annex 6: Labor Mobility Programs and Interventions ...............................................................................156
Annex 7: China 11th Five-Year Program Key Policies and Regulations in Social Protection (2005-2008)
.....................................................................................................................................................................157
Annex 8: Urban Pension System in China: Summary of Major Policy Changes ......................................159
Annex 9: China 11th 5YP: Key Policies on Health (2005-2008) ..............................................................160
Annex 10: Key Educational Indicators in 2006 ..........................................................................................164
Annex 11: Key policies and regulations in China Related to Resources and environment objectives in
China’s 11th Five Year Plan .......................................................................................................165
i
Executive Summary
Situation Prior to 11th 5YP
1.
When the 11th Five Year Program (5YP) was formulated in 2003-05, China
had enjoyed an extended period of rapid economic growth, poverty reduction, and
increasing integration with the global economy. Since the onset of economic reforms
and opening up three decades ago, China’s economic growth had been in a league of its
own, surpassing that of low income countries (LICs), middle income countries (MICs),
and other BRICs (Brazil, Russia, and India) (Figures 1 and 2). GDP growth had averaged
about 10 percent per year, with reduced volatility and generally low inflation from the
mid-1990s. Poverty had fallen sharply on all definitions; on the cost-of-basic needs
benchmark, poverty had declined from 65 percent of the population in 1981 to about 7
percent in 2005, lifting hundreds of millions out of poverty at an unprecedented rate.
China had also integrated swiftly into the global economy via trade and foreign direct
investment, culminating in China’s accession to the WTO in 2000.
2.
Reforms also increased the market orientation of China’s economy. The role
of the private sector and market mechanisms expanded steadily, while direct government
control over economic activity diminished. Product and factor markets gradually became
more integrated. One exception was the financial sector, where reforms lagged and all
major banks remained state-owned, dominating the financial system. But even here
progress was marked. The government had recapitalized the major state banks, invited
strategic partners, raised funding in capital markets, improved the supervisory and
regulatory framework, and aimed at reforming internal management and controls. And, in
parallel, capital markets were expanded and deepened. Finally, fiscal revenues, which
had been pressured during the early years of reforms, had recovered since the mid-1990s.
Figure 1 China’s GDP Per Capita Growth Has Been
Very Rapid
30
25
20
Growth
(percent
yoy)
Figure 2 This Has Allowed China to Catch up with
Other Countries
China
4,000
Lower income countries
3,500
Middle income countries
Other BRICS
3,000
15
2,500
10
2,000
5
1,500
0
1,000
-5
500
GDP per
capita
2000 US$
China
Lower income countries
Middle income countries
Other BRICS
0
-10
1980
1984
1988
1992
1996
2000
2004
Source: World Development Indicators, WB
1980 1984 1988 1992 1996 2000 2004
Source: World Development Indicators, WB
ii
3.
Despite – or perhaps as a result of -- these achievements, the attention of
policy makers focused increasingly on growing economic and social imbalances that
emerged as a result of China’s rapid growth. These imbalances included:

Heavy reliance on investment and exports for economic growth, at the
expense of domestic demand, especially consumption. This was reflected in a
large and growing external current account surplus that reached 7 percent of
GDP in 2005.

Domination of industry, especially heavy industry, over the services sector
(services make up 40 percent of GDP in China, compared with an average 54
percent in middle income countries and 70 percent in high income countries).

Rapid increases in the demand for energy and other resources. China’s
primary energy consumption grew by 62 percent during 2000-05 largely
because of its capital-intensive, industry-led growth. China’s energy intensity
also climbed, reversing a trend decline since the start of market reforms. By
2005, it was 43 percent higher than in India and 73 percent higher than in the
U.S., based on PPP GDP. Excessive withdrawal of water from surface and
underground resources caused acute water scarcity in the northern plains.

Widening disparities in regional development and incomes, between urban
and rural areas and coastal and inland provinces.

Pronounced unevenness in access to basic public services between urban and
rural areas. Social protection remained inadequate, especially for vulnerable
groups including large numbers of rural-urban migrants. Access to education
was uneven between urban and rural areas; the health system was poorly
developed in rural areas, and there was a general lack of access to affordable
health care.

A mixed record in the improvement of environmental quality. While air
quality had improved in many cities, and water quality had improved in the
south, overall emissions of key pollutants had increased, as has the production
of solid waste. China is now home to 13 of the world’s 20 most polluted
cities. Land use patterns created tensions among the conflicting demands of
urbanization, farmers’ income, and environmental protection.
4.
In no small part, these imbalances were an outcome of China’s capitalintensive, industry-led pattern of growth (Figure 3). China’s growth had been capital
intensive, with the investment to GDP ratio rising to almost 43 percent in 2005 and—
using growth accounting—capital accumulation accounted for over 60 percent of GDP
growth during 1993-2005. From a sectoral perspective, China’s growth was driven
especially by industry, which during 2003-2005 accounted for over 60 percent of all GDP
growth. The burgeoning profits of industrial firms, together with cheap credits from state
banks, were invested in additional capacity. Industrial growth was associated particularly
iii
with increases in labor productivity, less so with employment growth, reflecting in part
labor shedding by SOEs. Moreover, with industry taking the lead, service sector
development lagged (the share of services in GDP was 40 percent in 2005, compared to
an average of 54 percent in middle income countries and 70 percent in high income
countries). As a result, urban employment growth, while robust, was not as high as it
could have been, given China’s rapid overall growth.
Figure 3 China’s Capital-Intensive, Industry-led Economy in International Perspective 1/
45
Investment over
GDP ratio
(percent)
40
35
China (2005)
South Korea
(1990)
Malaysia (1990)
India (2005)
Japan (1990)
Japan (1980)
30
South
Korea
25
Malaysia (1980)
Japan
Thailand
Malaysia
20
US
Indonesia
Malaysia (1970)
15
Malaysia (1960)
Share of industry in value added (percent)
10
10
20
30
40
50
60
Sources: World Development Indicators, NBS (for China), and staff estimates.
1/ 2001, unless otherwise indicated.
5.
This capital-intensive, industry-led pattern of growth was a key driver of the
imbalances outlined above. First, the capital-intensive, industry-led growth had been
particularly intensive in energy, natural resources, and environmental degradation, thus
accentuating the associated imbalances noted above. While energy and natural resource
intensity was declining in several sectors, the relatively rapid growth of industry
increased the weight in GDP of the most energy and resource intensive sectors. Second,
capital-intensive growth created fewer jobs than a services-led growth pattern, limiting
the absorption of surplus agricultural labor and contributing to the rising rural-urban
income inequality and rural poverty noted above. Third, capital-intensive growth resulted
in a declining share of wage income in GDP—a key driver of the declining share of
consumption in GDP, the rising share of investment, and a ballooning external current
account surplus.
iv
6.
Government policies helped accentuate China’s capital-intensive, industryand export-led growth pattern. Thus, while serving the economy well in several
regards, policies indirectly accentuated the imbalances noted above. Policies encouraged
saving and investment, with government spending geared to investment in physical
infrastructure more than health and education, and biased to richer, coastal areas.
Industrialization was promoted via easy access to cheap credit for large industrial firms,
as well as by underpricing key inputs, including capital，energy, natural resources, land,
and the environment. The reluctance to move to greater exchange rate flexibility and
allow the exchange rate to appreciate further stimulated exports and industry. The priority
accorded to industry meant that services lagged. The hukou system restricted rural-urban
migration and limited access to urban public services for migrants, further accentuating
capital intensity, but at the same time dampening the rate of urbanization and avoiding
the formation of urban slums.
The 11th 5YP: A Turning Point in China’s Development Strategy
7.
The 11th 5YP reorients policies to correct these imbalances. In a major shift
from previous plans which had quantitative growth as the dominant objective, the 11th
5YP gives priority to rebalancing the economic structure as well as to environmental and
social objectives. It recognizes that economic, environmental, and social objectives are
intertwined. The guiding principles and policy orientation seek to rebalance China’s
growth pattern, with domestic demand, especially consumption, as the main driver, and
services as the leading sector. This, in turn, is expected to better balance economic
growth with resource conservation, energy efficiency, and environmental protection.
Moreover, rebalancing the pattern of growth is expected to help mitigate the urban-rural
divide, promote more balanced regional development, and improve basic public services,
especially social protection, health, and education. To meet these objectives, the 5YP sets
out 15 main tasks and strategic priorities, which in turn are supported by 22 quantitative
benchmarks, of which 8 are obligatory and 14 are anticipative. A three-tier monitoring
and evaluation framework was developed with a large number of quantitative indicators,
although this does not seem to be operational yet. The overarching goal is to deliver a
more people-centered growth and development that is more sustainable and equitable,
thereby creating a more “harmonious society.”
Implementation of the 11th 5YP: Progress to Date
8.
This mid-term review has been undertaken to assess progress in the
implementation of the 11th 5YP during its first two years and a half, draw
preliminary lessons, and make recommendations for policy adjustments. The review
examines the following strategic objectives: ensuring the stable operation of the macro
economy and improving living standards; optimizing and upgrading of industrial
structure; increasing energy efficiency; coordinating urban and rural development;
improving basic public services; and enhancing sustainable development.
9.
During the implementation of the 11th 5YP, China has been buffeted by
various exogenous shocks. Domestically, natural disasters—the severe storms last
v
winter and the recent massive earthquake in Sichuan—took a heavy toll. Externally,
global demand has slowed owing to the slump in the U.S. housing market and the related
credit crisis and increased risk aversion. International oil, food, and other commodity
prices have soared. These developments pose new challenges. But they also reinforce the
appropriateness of the policy priorities of the 11th 5YP to increase the economy’s
resilience and ensure sustainable growth.
10.
The 11th 5YP overall provides useful guidance to policy makers. The
objectives and tasks set out in the 5YP are consistent with China’s development
challenges and government priorities Moreover, the quantitative indicators generally
accord well with the overall guiding principles, orientations, and objectives, suggesting
that these have been successfully put into operation.
11.
Many policies, programs, and regulations have been put in place recently to
achieve the plan’s objectives. These include high-level political directions, broad
strategies, specific administrative and policy measures, as well as the establishment of
new institutions, regulations, and standards. On the whole, these measures were
comprehensive and relevant to the objectives.
12.
Progress toward achieving the major objectives of the 11th 5YP has varied
(Table 1).

Economic growth has far exceeded expectations.

Considerable progress has been made toward the 5YP’s most important social
objectives: improving basic public services in social protection, education,
health, and conditions in rural areas (even though income disparities between
rural and urban areas continue to widen).

Progress on the environmental objectives has been mixed: insufficient
progress has been made in reducing energy intensity, but improvements were
seen in reducing air and water pollution, treating industrial solid waste,
increasing the efficiency of water use, and expanding forest coverage.
13.
Broadly speaking, the progress achieved so far can be attributed to several
key factors. These include a high level of political commitment, generally adequate
administrative capacity to roll out new initiatives rapidly, strong public support for the
objectives, an adjusted accountability system that links implementation to performance
assessment of local officials, and increased central funding. The policy measures
introduced were comprehensive and relevant to the objectives.
14.
However, little progress has been made in rebalancing the overall pattern of
growth, which has in turn limited progress on other key objectives. There has been
little rebalancing away from industry and investment towards services and consumption.
This, in turn, has made it difficult to meet the objectives on energy efficiency, the
environment, and reducing the external imbalance. The lack of decisive rebalancing has
vi
also made further widening of urban-rural income inequality almost unavoidable, despite
strong government efforts. Going forward, rebalancing would help meet these objectives
and solidify the social gains that have been achieved. The policy agenda for rebalancing
is broad ranging, involving macroeconomic policy adjustments and structural reforms, as
discussed below.
Table 1 China's Progress in Meeting the Quantitative Indicators under the 11 th 5YP
Category
Economic
growth
Indicator
GDP (RMB trillion)
GDP per capita (RMB)
Economic
Structure
Share of services in GDP (%)
Share of services in total employment (%)
Ratio of R&D expenditures to GDP (%)
Urbanization Rate (%)
Total Population (100 mln)
Reduction of energy use per unit of GDP (%)
Reduction of water use per unit of industrial VA (%)
Population, Efficiency coefficient of irrigation water
Compreh. utiliz. rate of industrial solid waste (%)
resources,
and
Total cultivated land (mln ha.)
environment Reduction of total major pollutants emission (%)
COD
SO2
Forest Coverage (%)
Average number of years of schooling (yr)
Public
Population covered by basic urban pension (100 mln)
Services
Coverage new rural coop. health system (%)
and
New urban employment in five years (mln)
Quality
Rural labor force transferred in five years (mln)
of
Registered urban unemployment rate (%)
Life
Per capita disp. income urban households (RMB)
Per capita net income rural households (RMB)
2005
2007
actual
18.4
14,103
actual
25.0
18,885
39.9
31.4
1.2
43.0
13.1
0
0
0.45
56.1
122.1
na
na
18.2
8.5
1.7
75.7
4.2
10,493
3,255
40.1
33.2
1.4
44.9
2010
Type of
target Target 1/
26.1
A
19,270
A
43.3
35.3
2.0
47.0
A
A
A
A
13.2
4.6 2/
…
0.46 4/
61.2
121.7 4/
13.6
20.0 3/
30.0 3/
0.50
60.0
120.0
O
O
O
A
A
O
2.1 2/
3.2 2/
…
…
2.0
85.7
10.0 3/
10.0 3/
20.0
9.0
2.2
80.0
45
45
5.0
13,390
4,150
O
O
O
A
O
O
A
A
A
A
A
13,790
4,140
Sources: China's authorities, NBS, and staff estimates.
1/ A = Anticipated; O = Obligatory
2/ accumulated reduction in 2006-07
3/ Targeted accumulated reduction in 2005-10
4/ 2007 data not yet available. This is the 2006 data.
Looking more specifically at the major objectives of the 11th 5YP:
Stable Operation of Macroeconomy and Improved Living Standards
15.
China has broadly succeeded in combining rapid growth with low inflation.
During 2005-07, GDP growth accelerated to nearly 12 percent annually and per capita
income growth rose rapidly in urban and rural areas even as the gap between rural and
urban incomes widened (Table 2). But little progress was made in rebalancing the
underlying drivers of growth, which on the sectoral side continued to be industry, and on
the demand side, investment and exports (Figures 4 and 5). The labor-intensive services
sector continued to lag behind industry, but with overall economic growth so strong,
vii
urban job creation remained robust. Preliminary data indicate strong poverty reduction in
the first 2 years of the 11th 5YP period. China is affected by the global financial turmoil
and slowdown, with growth in end-2008 and early 2009 expected to be particularly weak.
However, the medium-term growth outlook remains good and the 11th 5YP’s objectives
for overall and per capita income growth will likely be achieved.
Table 2 Indicators on the Macro Economy and Living Standards
Real GDP (production side)
Consumer prices (period average)
Fiscal balance (% GDP)
Current account balance (% GDP)
Real urban p.c. income (%)
Real rural p.c. income (%)
2005
10.4
1.8
-1.2
7.1
9.6
6.2
2006
11.6
1.5
-0.5
9.5
10.4
7.4
2007
11.9
4.8
0.7
11.3
12.2
9.5
2008 WB 1/
9.4
6.5
-0.4
9.3
…
…
Source: NBS, SAFE, Ministry of Finance.
1/ World Bank Forecast, December 2008.
16.
Since early 2007, headline inflation has climbed as a result of sharply rising
international and domestic food prices. The impact of higher international oil prices on
inflation has so far been muted due to price controls, even with an increase in fuel prices
in June 2008. In mid 2008, headline inflation started to recede as food prices stopped
rising. Some spillover of the initial food price hikes is taking place and additional
pressure from surging oil and commodity prices is in the pipeline. On balance, headline
inflation should continue to recede. However, there is a risk that inflation expectations
increase. This risk is compounded by the conduct of monetary and exchange rate policy.
In the face of large balance of payment surpluses, in part due to speculative inflows, the
limited flexibility of the exchange rate regime constrains the independence of monetary
policy and real interest rates are negative.
Figure 4 Industry Still Outpaces Services
(constant prices)
16
14
12
Grow th
(percent,
yoy)
Figure 5 Investment Still Outpaces Consumption
(constant prices)
Construction
Tertiary
Industry
25
20
Grow th
(percent,
yoy)
Exports
Consumption
10
15
Investment
8
10
6
Primary
4
5
2
0
0
2006
2007
Source: NBS, World Bank staff estimates
2006
Source: NBS, World Bank staff estimates
2007
viii
17.
A visible reflection of China’s macroeconomic imbalances is the current
account surplus, which climbed to over 11 percent of GDP in 2007, approaching
0.75 percent of global output. The trade surplus declined in the first 5 months of 2008
from its level a year ago because of a large deterioration in the terms of trade as raw
material prices soared. In constant prices, though, net external trade continued to
contribute to GDP growth even as the world economy slowed. The large external surplus
reflects the lack of progress in rebalancing the overall pattern of growth. Exchange rate
developments have been an important factor limiting this progress, although, as noted,
many elements of the policy setting have played a role, including the pricing of inputs
and capital for industry, fiscal policy, and financial sector policies.
18.
China’s exchange rate has gradually appreciated. Since July 2005, the
exchange rate of the RMB has been set with reference to a basket of currencies, and it has
appreciated almost 21 percent against the U.S. dollar up to November 2008. The U.S.
dollar, however, has depreciated against most of world’s major currencies during this
period, despite strengthening in recent months. As a result, on a trade-weighted basis, the
RMB’s appreciation has been more limited since July 2005, at 15 percent. At the same
time, productivity growth in China’s manufacturing industry has continued apace,
implying a strengthening of the equilibrium exchange rate.
Optimization and Upgrading of Industrial Structure
19.
There is mixed progress in meeting the overall objectives in the area of
industrial structure. The targets on the share of total employment in the service sector
and R&D are within reach. However, given recent trends, it seems unlikely that the target
to raise the share of the service sector in GDP can be met. Instead, during the first two
years of the 11th 5YP, industry continued to outpace the services industry. Within the
industrial sector, energy-intensive heavy and chemical industries (such as steel and
aluminum) gained further importance. These developments have made achieving the
objectives on energy efficiency and environmental quality more difficult to achieve.
20.
The industry-specific agenda to upgrade the industrial structure appears to
be on track. While it is difficult to measure progress in this area, the tasks the
Government set on industrial upgrading are being carried out: accelerating the
development of high tech industries; revitalizing equipment manufacturing industries;
and adjusting the structure and spatial layout of raw materials industries. Industrial
upgrading has involved a strong role for government in resource allocation, in the form of
investment licensing, access to land and financial resources, and various administrative
measures.
21.
Whether carrying out the industrial agenda actually improves the economic
and industrial structure is open to question. This is because it is difficult to assess
whether setting and carrying out a detailed agenda for industrial structural changes yields
optimality in an increasingly market-oriented economy. With the increased market
orientation of China’s economy, industrial upgrading is best pursued by measures that
encourage innovation such as improved IPR, venture capital markets, better governance
ix
of SOEs, and greater access of private firms to capital markets.
22.
Overall quantitative indicators generally suggest continued improvements in
the performance of the industrial sector. This is evident in the continued rapid growth
in labor productivity and catch up with high income countries during the first two years
of the 11th 5YP. The productivity improvements and upgrading boost China’s
international competitiveness. Judging from continued increases in China’s global market
share, this competitiveness position is strong. In addition, measures of the return on
capital have continued to improve for both SOEs and non-SOEs. However, SOEs
continue to show considerably higher capital intensity (the amount of capital per worker),
with lower rates of return on capital, employment creation and labor productivity growth
than non-SOEs.
Increasing Energy Efficiency
23.
China’s energy intensity (the amount of energy per unit of output) has been
reduced, but by much less than needed to achieve a 20 percent reduction by 2010. At
the start of the 11th 5YP, energy intensity reversed an upward trend exhibited since 2002.
However, the extent to which this can be sustained is questionable. This is because the
reduction in energy intensity seems to be mainly at the sectoral rather than the macro
level. At the sectoral level, higher energy efficiency has been achieved in specific
products. However, capital-intensive and high energy using industries continue to grow
more rapidly than other parts of the economy. That is because the overall pattern of
growth and the policies underlying it, including the pricing of energy and other resources,
remain broadly unchanged. Looking ahead, the efficiency gains from technical upgrading
and closure of inefficient capacity will become harder to tap in the future. Without
rebalancing the pattern of growth and the economic and industrial structure, it is unlikely
that the 20 percent reduction target in energy intensity could be achieved. Raising energy
prices would likely be most effective in promoting energy efficiency and contributes to
rebalancing. It is equally important to put in place the policies and the institutional,
regulatory, technical, and financial framework and capacity to sustain China’s efforts to
transform to more energy efficient economic growth.
Coordinated Urban and Rural Development and Improving Basic Public Services
24.
The first two years of the 11th 5YP have witnessed substantial social progress.
Government spending on rural issues is budgeted to increase from 1.6 percent of GDP in
2005 to 2.0 percent of GDP in 2008. Conditions in rural areas improved significantly.
The targets relevant to balanced rural-urban development in the 11th 5YP, including the
coverage of the new rural cooperative medical services, farmland retention, and per
capita income of rural residents, will likely be met (Table 3). Four policy initiatives
during the 11th 5YP have been instrumental in improving farmers’ incomes and living
conditions: (i) the abolishment of agricultural taxes and fees in 2005; (ii) introduction of
free compulsory education in the countryside; (iii) the introduction of the rural
cooperative medical insurance schemes; and (iv) the extension of the minimum living
standard allowance.
x
Table 3 Social Indicators
Basic urban old age insurance contributors (millions)
No. of beneficiaries rural dibao (millions)
No. of counties with NCMS (percent) 1/
No. of beneficiaries rural Medical Assistance(millions)
2005
2007
175
8.3
22
11.1
201
34.5
86
35.7
2010
target
223
…
80 2/
…
Percent
completed
54
…
> 100
…
Source: MOLSS, Civil Affairs Yearbook, MOH, MOE.
1/ New Rural Cooperative Medical System (health insurance).
2/ The target was recently revised to 100 percent.
25.
Considerable progress has also been made to improve public services in the
areas of social protection, education, and health. This is based on strong government
effort and significant progress in rolling out various initiatives. While there are still
important design issues in need of reform, achieving the targets for the social objectives
laid out in the 11th 5YP is on track, or even ahead of schedule in some cases:

China is on track to meet the targets for expanding basic urban pensions,
unemployment insurance, work injury insurance, maternity insurance, and
rural dibao program (a poverty gap program for the poorest rural residents).
Having achieved this impressive progress, attention can now focus on several
design issues with the framework for social protection.

The targets for health protection and major disease prevention and control are
also being realized ahead of schedule. All counties nationwide are expected to
be covered by the new rural cooperative medical system by end 2008. Basic
medical insurance for urban residents and employees is also expanding
rapidly. A medical assistance system now covers all rural counties; good
progress is also being made on introducing medical assistance in urban areas.
Building on this rapid expansion of health protection, the government could
usefully turn to some design issues.

In the priority areas of education, targets for expanding free compulsory
education nationwide, as well as for scale and system development of
vocational and higher education will be achieved ahead of schedule.
26.
At the same time, the challenge of how to distribute the benefits of rapid
economic development more equitably remains. This is because while conditions are
improving in rural areas, they are improving even faster in urban areas. Despite a massive
increase in financial support in rural areas, with central government spending on
agriculture and rural areas rising by 75 percent during 2005-07, the gaps in income and
quality of life between the urban and rural areas continue to widen.
Enhancing Sustainable Development
27.
Preliminary indications are that China has made progress toward a more
resource efficient and environmentally sound economy. The unrelenting increase in
xi
air and water pollution discharges over the past decade appears to have been reversed
during the past two years, indicating progress toward the target reduction of SO2 and
COD emissions by 10 percent during the 11th 5YP, although meeting the target may be
difficult (Table 4). The share of industrial solid waste that is treated has been raised. The
efficiency of water use in irrigation and the industrial value added per unit of water
consumed have increased, but the reduction in water intensity in industry by 30 percent
remains a difficult goal. Forest coverage has steadily expanded, although the timetable
for reaching the 20 percent target may have been set back somewhat by the recent severe
winter.
28.
Nevertheless, immense environmental challenges remain. Air and water
pollution in China still exceeds applicable standards in most areas. Freshwater
withdrawals already exceed sustainable levels of both surface and underground resources,
especially in North China. The forest cover remains far below the level needed to restore
its environmental and ecological functions, even though a massive reforestation effort has
been under way for nearly a decade. Prospects for continued progress in increasing
resource efficiency, however, are clouded by the current economic structure, with
concentration of industrial growth in resource intensive, high polluting industries.
Table 4 Environmental Indicators
COD emission (10000 ton)
SO2 emission (10000 ton)
Utilization of industrial solid waste (%)
2005
2007
1414
2549
56
1384
2467
61.2 1/
2010
target
1270
2295
60
Percent
completed
21
32
> 100
Source: Statistical Yearbook 2007, Xinhua.
1/ Data for 2006.
29.
In sum, significant progress has been made toward many of the major
objectives of the 11th 5YP, but important challenges remain. In particular, insufficient
progress on macroeconomic rebalancing and changing the economic and industrial
structure has limited progress on energy and water intensity, and environmental quality.
Also, with little progress in rebalancing, less urban job creation has occurred than could
have been under a more labor intensive pattern of growth—in particular, less formal
urban employment and permanent migration—potentially undermining the social
progress that has been achieved. Moreover, the limited strengthening of the exchange
rate, combined with rapid productivity growth, especially in manufacturing, has
contributed to the large and unsustainable external current account surplus and inflation
risks. Accordingly, priority should be given to rebalancing which would help to meet the
environmental objectives and solidify the social gains.
The Policy Agenda Ahead
30.
Achieving a rebalanced economy requires reforms in a broad range of areas.
These encompass macroeconomic and structural policies, fiscal policy and
intergovernmental fiscal relations, government spending, monitoring and evaluation,
administrative reforms, price reforms, and regulations and standards. The implementation
xii
experience thus far suggests the following areas for policy adjustments.
31.
A range of macroeconomic and structural polices will help to stimulate
domestic consumption, reduce domestic saving, and stimulate expansion of the
services sector. These include:
32.

Continue to shift government spending from investment to social protection,
health, and education.

Strengthen further the exchange rate to shift production from tradables to nontradables and increase exchange rate flexibility to give more independence to
monetary policy; this, in turn, would facilitate greater reliance on market
based instruments, including interest rates, for macroeconomic management.

Further pursue financial market reforms to improve the efficiency in the
allocation of capital, consistent with higher interest rates, thus keeping growth
up with less investment and increasing the role of consumption. Such reform
and more efficient allocation of capital should benefit the service sector and
small and medium-sized enterprises.

Expand the dividend policy for SOEs and improve corporate governance to
remove the over-investment bias, especially in large, industrial SOEs.
Fiscal and tax policy can help to adjust the structure of production:

Eliminate the underpricing of industrial inputs—land, energy, water, natural
resources, and the environment—through price increases, tax measures,
and/or pollution charges. Accelerated energy price reform would allow prices
to reflect the full cost of supply, including environmental and depletion costs.
The recent adjustment in domestic oil prices is a step in the right direction.

Remove remaining distortions in the tax system that subsidizes
manufacturing, including the VAT system as well as remaining preferential
tax treatment of FDI.

Remove remaining restrictions on the development of a thriving services
industry. Addressing, as planned, monopolies and oligopolies in several
service sectors is important, as is removing other barriers and vigorously
implementing WTO commitments.
33.
Introduce institutional reforms that give local officials stronger incentives
and better tools to pursue rebalancing are also important. A key measure is to
increase accountability, especially via the performance evaluation of local officials and
enforcement of laws and regulations. Last year’s measure to include land revenue in the
local government budget, rather than as part of the extra-budgetary funds managed by
land bureaus, could improve the governance of these funds and reduce the incentive to
xiii
pursue a land-intensive development pattern.
34.
China is in a strong fiscal position to support the rebalancing of the economy.
Fiscal savings from higher energy and resource prices and environmental taxes could be
used for expenditures in priority areas identified by the 11th 5YP, reductions in other
taxes, or compensation to vulnerable groups affected by the price adjustments.
35.
Reform of the intergovernmental fiscal relations would allow poor regions to
have the resources to carry out improvements in the social sectors. Inadequate local
funding (and capacity) in poor regions is a serious constraint on further progress in many
areas, including the delivery of rural services, social protection, education, health, and
resource efficiency. Sub-national governments in China are responsible for a much larger
share of spending than in most other countries. In the absence of significant net transfers
from rich to poor regions or other revenue sources, large disparities in spending per
person on public services are unavoidable. Moreover, income-poor but resource-rich
provinces are currently not adequately compensated when their resources are extracted
for national development. Reform of the intergovernmental fiscal system is required to
fundamentally address the problem. Such reform would need to include higher net
transfers via the center from rich regions to poor regions, notably through higher
equalization grants, possibly combined with further changes in spending responsibilities
between sub-national governments and the center. In addition, China should consider
options for devolving more revenue sources that benefit poor regions. Higher resource
taxes provide an opportunity to grant the poor provinces higher tax shares and make the
poor provinces less dependent on fiscal transfers. Payments for environmental services
(such as water, land conversion rights) could become revenue for the poor provinces as
well.
36.
Increased government spending puts a premium on the efficiency of
spending. The recent increase in spending and introduction of many new initiatives call
for more systematic and rigorous monitoring and evaluation frameworks.
This involves more research and analysis to develop better monitoring indicators,
focusing on results and quality, drawing on international experience and benchmarks; and
developing a robust information system to track progress. More can be done to nurture a
culture of evidence-based evaluation and building capacity for it. There needs to be better
linkage between results of evaluations and adjustments in policies, priorities, and
financing. In addition, stronger accountability is required, and the recent move to expand
the local officials’ evaluation system to include objectives of the 11th 5YP should be
helpful in this regard. Fragmentation of various programs, while probably unavoidable in
a big country like China, calls for further efforts at consolidation and coordination.
37.
To close the rural-urban income gap, a dual approach is needed that fosters
both a reallocation of labor from rural to urban areas and increases rural labor
productivity on and off the farm. While restrictions on the migration of rural labor to
urban areas can be further relaxed, this in itself cannot be done fast enough to effectively
close the rural-urban income gap. Nor can urban-rural income transfers fully close the
gap. This suggests the need for increases in agricultural output and productivity which, in
xiv
turn, requires more, but also more efficient public spending on rural public goods. More
spending could be directed to agricultural science and technology; environmentally
sustainable techniques for staple crop production (including more efficient water
management); and agricultural diversification to high value products. Further efforts are
also needed to create an enabling environment for agricultural modernization by
deepening and speeding up land related reforms, including land acquisition and land
tenure rights, and improving agricultural producers’ access to financial services.
38.
Administrative tools need to be augmented by increased reliance on market
incentives and regulatory means. So far, rapid progress has been achieved through
administrative measures in the areas of energy efficiency and environmental pollution.
However, this rate of progress may be difficult to sustain in the future without greater
reliance on market incentives and the regulatory system, including the criteria used for
performance evaluation of local government officials. There is increasing urgency in
building a policy and institutional framework that uses market-based instruments to
encourage rebalancing. Price reforms are called for, especially in the areas of energy and
resources pricing and taxation, but China’s grain price policies may also need to be
adjusted to bring domestic prices closer to international ones. Regulatory measures could
include environmental emission standards, consumer products labeling, and fuel and
building efficiency standards. Vigorous enforcement of regulations and standards will, of
course, be equally important.
1
1.
Introduction
Situation and Developments Prior to the Start of the 11th 5YP
1.1
When the 11th 5YP was formulated in 2003-05, China had experienced a long
period of sustained, rapid economic growth and development. GDP growth averaged
close to 10 percent per year between 1978 and 2005, with growth less volatile over time
and inflation low since the mid-1990s. China’s overall growth put it in a league of its
own: growth in GDP per capita was significantly higher than the average for low income
countries (LICs), middle income countries (MICs) and other BRICS (Figure 1.1). As a
result, China was catching up fast with MICs: its GDP per capita had increased from 43
percent from that of the MICs in 1995 to 66 percent in 2005 (in prices of 2000).
1.2
Living standards improved and poverty was reduced substantially. The share of
the population in poverty had fallen sharply on all definitions. On cost of basic needs
benchmark, poverty had declined from 65 percent in 1981 to around 7 percent in 2005,
lifting hundreds of millions out of poverty. Unemployment pressure in urban areas
mitigated earlier this decade after the worst of the labor shedding by SOEs came to an
end and private sector activity surged.
1.3
Structural reforms and opening up had continued apace and had brought China
closer to a fully fledged market economy. China’s economy was integrating swiftly into
the world economy via very rapid expansion of external trade and foreign direct
investment. Multinational companies set up manufacturing bases in China to supply
domestic and international markets. 1 The role of the private sector and market
mechanisms increased steadily, while direct government control over economic activity
diminished. 2 Product and factor markets had become more integrated domestically,
although there is room for further integration, particularly in services. Financial sector
reform continued, but lagged behind the transformation of the real economy, with all
major banks still state-owned and bank financing dominating the financial system.
Nonetheless, in 2005 the government was recapitalizing the major state banks, invited
strategic partners and was preparing to raise funding in capital markets; supervisory and
regulatory controls as well as internal management and controls were improved, although
there is further room for improvement to reach international best practice. In parallel,
capital markets expanded and deepened. Finally, fiscal revenues, which had during the
initial stage of the reform period been under pressure, had recovered since the mid-1990s.
1
Ranging between 2 and 4 percent of GDP since the early 1990s, FDI has been important in China not so
much as a much-needed source of financing of investment, but as a vehicle to access technology and
managerial skills.
2
The OECD reports that in 2003 the private sector share of value added was 52 percent, up from 28 percent
in 1998 (OECD, 2005).
2
Figure 1.1 China’s Growth Performance is in a
League of its Own
4,000
3,500
3,000
GDP per
capita
2000 US$
China
Lower income countries
0.60
0.50
Middle income countries
Other BRICS
2,500
Figure 1.2 Human development also progressed 1/
0.40
Lower income countries
0.30
2,000
1,500
0.20
1,000
0.10
Middle income countries
China
500
Other BRICS
0.00
0
1980
1989
1993
1997
2001
2005
1980 1984 1988 1992 1996 2000 2004
Source: World Development Indicators, WB
Source: UNDP, staff estimates.
1/ UN Human Development Index excluding GDP
per capita.
1.4
Despite – or perhaps as a result of – these achievements, the attention of policy
makers focused increasingly on growing economic and social imbalances that emerged as
a result of China’s rapid growth. The midterm review of the 10th 5YP carried out by the
NDRC identified 5 major imbalances.3 These were an “unhealthy” pattern of economic
growth, which relies overly on investment and exports”; insufficient development of the
tertiary industry; insufficient policy guidance and incentives for developing the western
region; slow progress with urbanization; and an imbalance between economic and social
development.
1.5
More specifically, during 2003-2005, the government observed the following
imbalances that it wanted to address.

Heavy reliance on investment and exports for economic growth, at the
expense of domestic demand, especially consumption. This was reflected in a
large and growing external current account surplus that reached 7 percent of
GDP in 2005.

Domination of industry, especially heavy industry, over the services sector.
Services make up 40 percent of GDP in China, compared with an average 54
percent in middle income countries and 70 percent in high income countries
(Table 1.1).
This mid-term review, China’s first, was carried out by the NDRC’s Strategy Planning Department
(SPD). It relied on available indicators and data to measure key economic and social trends, as well as on
mid-term reviews that provinces and ministries were asked to produce and a survey among 100 experts and
academics. The review looked at the implementation of the 10 th 5YP in 9 areas: “macro-regulatory targets”,
industrial structure, development of the western region, urbanization, science, technology and education,
the natural environment, reform of the economic system, opening up to the outside world, and people’s
lives.
3
3

Rapid increases in the demand for energy and other resources. China’s
primary energy consumption grew by 62 percent during 2000-05 largely
because of its capital-intensive, industry-led growth. China’s energy intensity
also climbed, reversing a trend decline since the start of market reforms. By
2005, it was 43 percent higher than in India and 73 percent higher than in the
U.S., based on PPP GDP. Excessive withdrawal of water from surface and
underground resources caused acute water scarcity in the northern plains.

Widening disparities in regional development and incomes, between urban
and rural areas and coastal and inland provinces.

Pronounced unevenness in access to basic public services between urban and
rural areas. Social protection remained inadequate, especially for vulnerable
groups including large numbers of rural-urban migrants. Access to education
was uneven between urban and rural areas; the health system was poorly
developed in rural areas, and there was a general lack of access to affordable
health care.

A mixed record in the improvement of environmental quality. While air
quality had improved in many cities, and water quality had improved in the
south, overall emissions of key pollutants had increased, as well as the
production of solid waste. China is now home to 13 of the world’s 20 most
polluted cities. Land use patterns created tensions among the conflicting
demands of urbanization, farmers’ income, and environmental protection.
Table 1.1 China in 2005 According to the 11th 5YP Indicators
Cagetory
Economic
growth
Indicator
GDP per capita (US$ 3/)
Economic
structure
Value added of service industry (% of GDP)
Employment of service industry (% of total employment)
R&D expenditure (% of GDP)
Urbanization rate (%)
Population,
resources,
and
environment
Energy consumption per unit of GDP (PPP) 4/
Water consumption per unit industral value added
Comprehensive utilization rate of industrial solid wastes (%)
Total cultivated land (1 million ha.)
Total major pollutants emission volume
Forest coverage (%)
Public
Services
and
Quality
of
Life
Average years of schooling (year)
Population covered by basic pension in urban areas (100 million)
Coverage of the new rural cooperative healthcare system (%)
Newly increased urban employment in five years (10 million)
Rural labor force transferred in five years (10 million)
Registered urban unemployment rate (%)
Per capita disposable income of urban households (RMB)
Per capita net income of rural households (RMB)
Sources: WDI, NBS, CEIC, and staff estimates.
1/ Middle income countries (average)
2/ High income countries, OECD countries (average)
3/ Constant 2000 US$
4/ High income countries average = 100
1995
actual
658
2000
actual
949
32.9
24.8
0.6
29.0
39.0
27.5
1.0
36.2
39.9
31.4
1.3
43.0
16.6
…
45.9
128.2
…
16.6
200.5
…
56.1
122.1
…
18.2
6.7
0.9
7.6
1.0
3.2
…
2.9
4,283
1,578
2.5
…
3.1
6,280
2,253
95.0
2005
China MIC 1/ HIC OECD 2/
1,451
2,181
26,051
8.5
1.7
75.7
4.4
…
4.2
10,493
3,255
54.3
53.9
69.8
70.0
2.0
76.8
100
33.8
33.4
12.0
16.5
6.4
6.2
4
1.6
In no small part, these imbalances had been an outcome of China’s capitalintensive, industry-led pattern of growth (Figure1.3). China’s growth had been capital
intensive, with the investment to GDP ratio rising to almost 43 percent in 2005 and—
using growth accounting—capital accumulation accounted for over 60 percent of GDP
growth during 1993-2005. From a sectoral perspective, China’s growth was driven
especially by industry, which during 2003-2005 accounted for over 60 percent of all GDP
growth. The burgeoning profits of industrial firms, together with cheap credits from state
banks, were invested in additional capacity. Industrial growth was associated particularly
with increases in labor productivity, less so with employment growth, reflecting in part
labor shedding by SOEs. Moreover, with industry taking the lead, service sector
development lagged (the share of services in GDP was 40 percent in 2005, compared to
an average of 54 percent in middle income countries and 70 percent in high income
countries). As a result, urban employment growth, while robust, was not as high as it
could have been, given China’s rapid overall growth.
Figure 1.3 China’s Capital-Intensive, Industry-led Economy in International Perspective 1/
45
Investment over
GDP ratio
(percent)
40
35
China (2005)
South Korea
(1990)
Malaysia (1990)
India (2005)
Japan (1990)
Japan (1980)
30
South
Korea
25
Malaysia (1980)
Japan
Thailand
Malaysia
20
US
Indonesia
Malaysia (1970)
15
Malaysia (1960)
Share of industry in value added (percent)
10
10
20
30
40
50
60
Sources: World Development Indicators, NBS (for China), and staff estimates.
1/ 2001, unless otherwise indicated.
1.7
The capital intensive, industry-led growth pattern has served China well in many
respects. The high saving and investment, combined with respectable rates of
technological progress, have supported the rapid GDP growth on a sustainable basis by
ensuring that potential GDP (the capacity to produce) has broadly grown alongside actual
GDP. The massive expansion of industrial production has made China a manufacturing
powerhouse.
5
1.8
However, the capital-intensive, industry-led pattern of growth was also a key
driver of the imbalances outlined above.

First, the capital-intensive, industry-led growth had been particularly
intensive in energy, natural resources, and environmental degradation, thus
accentuating the associated imbalances noted above.

Second, the capital-intensive growth has created fewer urban jobs than a more
labor intensive service-based pattern would, and has thereby increased urbanrural inequality. Industry creates fewer jobs than services: in 1993-2005,
when industrial value added growth averaged over 11 percent per year,
industrial employment rose by 1.6 percent per year. As a result, absorption of
agricultural surplus labor was largely left to the service sector, and has been
moderate since the mid 1990s. This limited the movement of people out of
agriculture and the rural areas, where productivity and income are much
lower. The resulting divergence in productivity between agriculture and the
other parts of the economy is a key to understanding the increase in ruralurban income inequality and has accentuated rural poverty.

Third, under this pattern, production has tended to outstrip domestic demand.
While the pattern of growth was investment heavy, industry-led, and business
friendly, surplus labor in agriculture helped to keep wage growth below
productivity gains. In terms of the distribution of income, the flipside of the
increase in enterprise income and buoyant tax revenues is that wage income,
and household income in general, has lagged overall income considerably
(the share of wages in GDP declined by 11.5 percentage points between 1998
and 2005). The declining role of wages and household income is the key
driver behind the declining share of consumption in GDP since the late 1990s.
From the external perspective, a significant share of demand for China’s
products has come from abroad instead of from Chinese households and
businesses. This has resulted in very large current account surpluses (around
12 percent of China’s GDP in 2007 and approaching 1 percent of global
output).
1.9
Government policies helped accentuate China’s capital-intensive, industry- and
export-led growth pattern. Starting with a large amount of surplus labor, China’s
successful industrialization would by itself have guided the pattern of growth in the
direction described above. However, China’s policies have clearly accentuated this
pattern. Thus, while serving the economy well in several regards, policies indirectly
accentuated the imbalances noted above. The government has subsidized and favored
industry and investment over the services sector and domestic consumption in several
ways: (i) policies have encouraged saving and investment, with government spending
especially geared to investment in physical infrastructure instead of current spending on
health and education; (ii) investment in industry has been encouraged in other ways as
well, including via easy access to credit for large, industrial firms and a policy not to
require profitable SOEs to pay dividends to the state; (iii) industrialization has also been
6
promoted by underpricing key inputs, including energy, land, and the environment; (iv)
the reluctance to move to greater exchange rate flexibility and allow the exchange rate to
appreciate further stimulated exports and industry; (v) prioritization of industry has also
meant that the service sector lagged; and (vi) the containment of migration into urban
areas has further shaped the capital intensive nature of growth, even though the
containment of urbanization helped avoiding urban slums.
The 11th 5YP
1.10 The 11th 5YP (2006-10) is a major shift from previous plans in terms of the
objectives of economic policy. 4 Through the 1990s the 5YPs had overall economic
growth and development as their dominant objective and emphasized industry and
agriculture. Reflecting concerns about the “imbalances,” the 11th 5YP saw a broadening
of the set of economic and social policy objectives. The 5YP gives priority to rebalancing
the economic structure as well as to environmental and social objectives. The guiding
principles and policy orientation seek to rebalance China’s growth pattern, with domestic
demand, especially consumption, as the main driver, and services as the leading sector.
This, in turn, is expected to better balance economic growth with resource conservation,
energy efficiency, and environmental protection. Moreover, rebalancing the pattern of
growth is expected to help mitigate the urban-rural divide, and promote more balanced
regional development, while improving basic public services, especially social protection,
health, and education.5
1.11 China’s 5YPs provide broad direction to policymakers. They do not include many
concrete policies. The 11th 5YP has an elaborate structure, with 6 guiding principles, 6
overall orientations, 9 major objectives, and 15 main tasks and strategic priorities. Annex
1 contains an overview of the 11th 5YP. Table 1.2 shows this overview in table format.
1.12 The 11th 5YP identifies six guiding principles: maintain steady and rapid
economic development, speed up the transformation of the economic growth pattern;
improve the capability for independent innovation; promote coordinated development
between urban and rural regions; build harmonious society, and deepen reform and
opening up to the outside world (see Table 1.2 and Annex 1 for more detail).
1.13 In accordance with these guiding principles, the 11th 5YP lays down six policy
orientations: expand domestic demand, optimize industrial structure, save resources and
protect environment, enhance the capability of independent innovation, deepen reform
and opening up, and be people-centered (see Table 1.2 and Annex 1 for more detail).
4
A change in name from Plan to Program reflects recognition of the different role the government is
supposed to play in an increasingly market-oriented economy. See Chapter 3.
5
The concept of “scientific development” was first proposed at the 3rd Plenary Session of the 16th Party
Central Committee of the Communist Party of China in October 2003. It calls for “people-centered
development that is comprehensive, coordinated, and sustainable, for the promotion of overall harmonious
development of the economy, society, and human beings.” The Session proposed guidelines for building a
Xiao Kang Society—and all round well-off society, by achieving 5 balances.
7
Table 1. 2 China’s 11th Five Year Plan
Guiding principles
Policy orientations
Objectives
Main tasks and strategic priorities
1. Building up new socialist country side (p 9):
develop modern agriculture (higher productivity, agricultural structural adjustment, enhance agricultural service system, improve markets),
increase peasants’ income (agricultural income, non-agricultural income, fiscal impact),
improve rural conditions (infrastructure, rural environmental protection, rural health service, rural social security),
train new type peasants (education, skill training, culture), increase agricultural and rural investment, deepen rural reform;
1. Stable operation of macro economy,
with robust growth of GDP and urban employment,
and moderate inflation and basically balanced trade;
1. Maintain steady and rapid economic development
relying more on domestic demand and consumption,
and less on investment, keeping macro balance;
1. Expand domestic demand,
especially consumer demand, change composition
of demand from relying mainly on investment and exports
to more balance;
2. Speed up the transformation of economic growth pattern
to a more rebalanced and sustainable one,
using fewer resources and protecting the environment;
2. Optimize industrial structure,
shift drivers from industry and quantities to the 3 sectors
(including agriculture and services) and structural upgrading;
3. Improve the capability for independent innovation
using science and education;
3. Save resources and protect environment:
based on a change in the pattern of growth, move sources
of growth from “resource investment” to efficiency increase;
4. Promote coordinated developm b/t urban and rural regions:
solving “3 rural issues” (agriculture, farmers, and the country side),
promote new socialist countryside and sound urbanization;
4. Enhance the capability of independent innovation:
shift drivers of growth from “fund and physical investment”
to science, technological progress, and human capital;
5. Build harmonious society:
being people-centered, resolve practical issues affecting people,
coordinate development economy and society, promote social equity
and shared growth, promote democratic and legal system
construction, maintain social stability;
5. Deepen reform and opening up:
move away from administrative intervention towards
market driven development with macro control and adjustment
by the state;
6. Deepen reform and opening up to the outside world:
reform towards socialist market economy, reform enterprise
and property right systems, prices determined by markets
and resource scarcity, increase resource allocation efficiency,
change government functions and improve macro control,
continue opening up to the outside world.
6. Be people-centered:
emphasise improving people’s living standards, shift emphasis
from increasing material wealth to promoting comprehensive
human development and coordinated development of economy
and society.
2. Optimization and upgrading of industrial structure,
rationalize structure of industry and enterprise organization,
increase share of the service sector, increase spending on R&D,
develop a group of “superior” companies with IPRs, well know
brands and strong international competitiveness;
2. Optimization of industrial structure (p 16) (here, seems to be filled in as “how to improve competitiveness and upgrade”):
accelerate development high-tech industry (electronic, information, and manufacturing industries; bio industry; air space industry);
equipment manufacturing industry (major technical equipment, automobile, shipbuilding);
optimize energy industry, with conservation, with coal as basis, build stable, economic,
clean and safe energy (coal, electric power, petroleum and gas, renewables);
adjust raw material industrial structure and distribution (optimize metal industry, adjust distribution chemical industry);
light and textile industry; informatization;
3. Significant increase of resource utilization efficiency,
reduce energy and water intensity, increase water available for
irrigation, and {use comprehensively} industrial solid waste;
3. Development of service sector :
producer-oriented service industry (transport, modern material ciculation industry, finance, information services, commercial services);
enrich consumption service industry (commercial and trade, real estate, tourism, town public utility, community service, sports);
policy guidance (p 29): break monopolies and entry barriers, separate profit oriented organizations from non-profit ones,
large cities should favor services industry;
4. Coordinated urban and rural development,
building the new socialist country side, increase urbanization,
prevent increase in urban-rural inequality in incomes, living standards,
and public services;
4. Coordinated regional development (including urbanization) (p 30):
overall regional development strategy (western development, old industrial bases (NE), central, east takes lead , old revolutionary bases, minority areas)
principle function area (optimized development zone, key development zone, restricted development zone, classified management regional policy);
sound urbanization (guide population urbanization by classes, rational urbanization spatial layout, urban planning);
5. Improved basic public services,
ensuring 9 years education, have a sound public health
and medical services system, increase social security
coverage, including old-age insurance and the rural cooperative medical
system, decrease poverty;
5. Building resources-saving and environment-friendly society (p38):
recycle economy (conserve energy, save water, save land use, save materials, strengthen comprehensive resource utilization);
strengthen policy measures to promote conservation (standards, specification, power demand side management,
implement finance and taxation, price and investment policies conducive to resource conservation, replace petroleum);
protect and remedy natural ecology {from treatment to prevention};
strengthen environmental protection (water pollution prevention, emission, solid waste, environment protection);
strengthen resource management (water, land, mineral); ocean and climatic resources;
6. Enhanced sustainable development,
contain population, keep up farmland retention, safeguard water,
increase energy and mineral resources, stop ecological/environmental
deterioration, reduce emission major pollutants, increase forest coverage,
and control greenhouse gas emission;
7. Enhanced market economy,
reforming administrative management, SOEs, finance and taxation,
banking, science and technology, education, culture and health,
coordinate opening up to the outside world and domestic development,
and open up further;
8. Improved living standards,
increasing per capital disposable incomes and the quality of life,
and improving conditions in housing, traffic, education, culture,
health, and the environment;
9. Progress with democratic legality
and spiritual civilization building,
progress with legal reform, ideology and morality,
and the harmonious society.
6. Strategies of science, education and talents to revitalize the nation (p 46):
scientific and technological innovation (independent innovation, techn. innovation, increase protection IPR, reform scientific and techn. system);
education development (compulsory education, vocational education, higher education, increase educational investment, reform management);
human resource development (high quality talent team, innovate talent work mechanism)
7. Deepen reform and opening up (p 52):
administration system (change government functions, improve government decision making, reform investment system);
improve basic economic system (SOE reform, SOE asset supervision, reform monopoly industries);
reform fiscal and taxation system;
reform monetary system (reform financial enterprises, direct financing, improve financial regulation and control, financial supervision);
improve modern market system (national market, price formation of resources and utilities, standardize market order);
win-win opening (optimize export structure, actively enlarge imports, develop service trade, improve fair trade policy);
improve quality of FDI ; go-out; international regional economic cooperation;
8. Promote socialist harmonious society (p 61):
population work (birth control, structure births, respond to population aging, women and children’s rights, handicapped);
improve living standards (expand employment, strengthen income distribution, improve social security system, relieve poverty, expand consumption);
improve people’s health (public health and medical service system, disease prevention and treatment, Chinese medicine, deepen health care reform);
public safety (disaster, work safety, food safety, national safety and social stability);
social management (grass roots organizations, ngo’s, deal with contradictions among people);
9. Strengthen socialist democratic and political construction (p 69) :
10. Strengthen the building of socialist culture (p 70):
strengthen socialist cultural construction (ideological and ethical progress, enrich people’s cultural life, reform cultural system)
11. Strengthen national defense and army building (p 72)
12. Establish and complete planning and independent mechanism (p 74):
implementation mechanisms for guidance different areas; adjust and improve economic policy making; improve planning and management system.
8
1.14 The 5YP also describes nine major objectives: stable operation of the macro
economy, optimization and upgrading of industrial structure, significant increase of
resource utilization efficiency, coordinated urban and rural development, improved basic
public services, enhanced sustainable development, enhanced market economy, improved
living standards, progress with democratic legality and spiritual civilization building (see
Table 1.2 and Annex 1 for more detail).
1.15 To meet the objectives, the 11th 5YP has around 15 main tasks and strategic
priorities: 6 build up new socialist country side; optimize industrial structure; develop
service sector; coordinate regional development; build resources-saving and
environment-friendly society; pursue strategies of science, education and talents to
revitalize the nation; deepen reform and opening; promote socialist harmonious society;
strengthen socialist democratic and political construction; strengthen national defense
and army building; establish and complete planning and independent mechanism. These
are not yet concrete, specific policies, but rather areas of emphasis.
1.16 The objectives are supported by 22 quantitative benchmarks (Table 1.2) of the
Plan; see below Table 1.3). The benchmarks were classified into benchmarks on
“economic growth”, “population, resources, and environment,” and “people’s life and
public services.” 8 of the benchmarks are considered obligatory benchmarks that lay
down the tasks for the government and are meant to be its responsibility. They can be
considered targets for public policy in a market economy. The government is supposed to
ensure their realization “through rational distribution of public resources and effective
exertion of administration forces.” The other 14 benchmarks are anticipative
benchmarks. The government should create favorable macroeconomic, institutional and
market environment; target with its policies; and make efforts to realize them. But, in line
with their nature in China’s increasingly market driven economy, the government cannot
ensure the anticipative benchmarks are realized and can thus not be held responsible for
their realization.
1.17 The 22 benchmarks are a good reflection of the areas of major objectives. They
clearly show the widening of the set of economic policy objectives towards rebalancing
of the pattern of growth, resource efficiency, balanced rural-urban development,
sustainability, and living standards.
1.18 Also, a monitoring and evaluation framework was developed, with 3 tiers of
quantitative benchmarks, although this does not seem to be operational yet (see Annex 2).
1.19 This evaluation report aims to assess the overall progress with implementation of
the Plan. The assessment is organized broadly according to the main objectives of the
plan, with chapters on “stable operation of macro economy”; “optimization and
upgrading of industrial structure”; “significant increase of resource utilization
efficiency”; “coordinated urban and rural development”; “improved basic public
services”; and “enhanced sustainable development.” The objective of “improved living
6
The World Bank has not been asked by NDRC to evaluate the tasks in italics.
9
standards” has been merged with that of the macro economic chapter. Some evaluations
are done in more depth than others. The evaluations have been more detailed in the areas
where the objectives and emphasis of the 11th 5YP differs from previous ones and that
have received particular emphasis of policy makers. This is the case for increasing
resource efficiency, improving basic public services, enhancing sustainable development,
and coordinating urban and rural development. The objective of “enhanced market
economy” has not been evaluated, since the objectives of the 11th 5YP do not materially
differ from previous ones in this area.
Table 1.3 China's Progress in Meeting the Quantitative Indicators under the 11 th 5YP
Cagetory
Economic
growth
Indicator
GDP (Trillion RMB)
GDP per capita (RMB)
Economic
structure
Value added of service industry (% of GDP)
Employment of service industry (% of total employment)
R&D expenditure (% of GDP)
Urbanization rate (%)
Population (100 million)
Population,
resources,
and
environment
Reduction of energy consumption per unit GDP (%)
Reduction of water consumption per unit industrial VA (%)
Efficient utilization of agricultural irrigation water (%)
Comprehensive utilization rate of industrial solid wastes (%)
Total cultivated land (1 million ha.)
Reduction of total major pollutants emission volume (%)
Forest coverage (%)
Public
services and
quality of life
Average years of schooling (year)
Population covered by basic pension in urban areas (100 million)
Coverage of the new rural cooperative healthcare system (%)
Newly increased urban employment in five years (10 million)
Rural labor force transferred in five years (10 million)
Registered urban unemployment rate (%)
Per capita disposable income of urban households (RMB)
Per capita net income of rural households (RMB)
2005
actual
2010
actual
Change
2000-2005 1/ 2005-2010 2/
18.4
14,103
26.1
19,270
8.5
6,245
7.7
5,167
39.9
31.4
1.3
43.0
13.1
43.3
35.3
2.0
47.0
13.6
0.9
3.9
0.3
6.8
0.4
3.4
3.9
0.7
4.0
0.5
…
…
0.5
56.1
122.1
…
18.2
…
…
0.5
60.0
120
…
20.0
…
…
…
…
-6.2
…
1.7
20
30
0.5
3.9
-2.1
>10
1.8
8.5
1.7
75.7
…
…
4.2
10,493
3,255
9.0
2.2
80.0
…
…
5.0
13,390
4,150
0.9
0.7
75.7
4.4
…
1.1
4,213
1,002
0.5
0.5
4.3
4.5
…
0.8
2,897
895
Sources: WDI, NBS, CEIC, and staff estimates.
1/ the real change in 2000-2005
2/ the targeted change in 2005-2010
1.20 The evaluations are done by World Bank staff members in their area of expertise,
helped and guided by local and international consultants. The evaluations are based on a
variety of types of information. These include reviews of available data and policies;
analysis of background studies; and interviews with government officials, academics, and
others.
1.21 The evaluations broadly follow a common approach. They start with describing
the situation before the 11th 5YP; describe the relevant key objectives in the FYP;
evaluate of developments so far, in terms of quantitative objectives and indicators and
policies and reforms; and draw conclusions about progress so far, challenges and
problems, and possible policy adjustments to meet the overall objectives. The evaluation
focuses on the implementation of the 5YP, instead of its design. Nevertheless, some
evaluations generated some suggestions policymakers could consider in the preparation
of subsequent 5YPs.
10
2. Stable Operation of the Macro Economy and Improve Living
Standards
2.1
This chapter evaluates progress in achieving 2 objectives: (i) “stable operation of
the macro economy”; and part of the objective (ii) “improved living standards.”
2.2
Stable operation of the macro economy has long been a key economic objective
and China performed for a long time since the mid-1990s quite well on this front. The
11th 5YP characterizes “stable operation of the macro economy” as sustained rapid GDP
growth and urban employment growth, moderate inflation, and “basically balanced
trade”.
2.3
The objective of “improved living standards” is in part related to the
macroeconomic objective. The 11th 5YP characterizes “improved living standards” as
reflected in rising per capita disposable incomes, as well as in improved conditions in
quality of life concerns such as housing, traffic, education, culture, health, and the
environment. Most of these dimensions are covered in the evaluation of other objectives,
particularly “coordinating urban and rural development”, “improving basic public
services”, and “enhancing sustainable development”. This chapter will focus on “rising
per capita disposable incomes.”
Situation and Developments pre 11th 5YP
2.4
During the 10th 5YP period (2001-05), growth of activity and employment had
been impressive. GDP growth averaged 9.6 percent per year (Table 2.1). Urban
employment growth was respectable at an average of 3.4 percent during 2001-05.
Nonetheless, this is not as fast as it had been in other East Asian countries when they
were at a similar stage of development. This is in part because China’s urban labor
market was still affected by SOE reform and labor shedding, even though the impact was
not as high as in the 1990s. As in other developing countries, informal urban
employment, which expanded significantly, may not be fully measured. However, as
suggested in Chapter 1, the limited urban employment growth has also been because of
China’s particular investment heavy, industry-led pattern of growth. The official urban
unemployment rate was 4.2 in 2005.
Table 2.1 Macroeconomic Developments (2000-2005)
Real GDP (production side)
Consumer prices (period average)
Fiscal balance (% of GDP)
Current account balance (% of GDP)
Sources: NBS, SAFE, and Ministry of Finance
2000
8.4
0.4
-3.6
1.7
2001
8.3
0.7
-3.1
1.3
2002
9.1
-0.8
-2.6
2.4
2003
10.0
1.2
-2.2
2.8
2004
10.1
3.9
-1.3
3.6
2005
10.4
1.8
-1.2
7.1
11
2.5
Rapid growth was accompanied by generally low inflation. At the beginning of
th
the 10 5YP, China had very low or even negative inflation. This was attributable mainly
to very low international commodity prices, including oil, and the impact of trade
liberalization because of China’s WTO accession in 2001. More broadly, inflation in
China has been low since the mid-1990s because potential GDP (the capacity to produce)
has grown very rapidly along with actual GDP (demand). This impressive pace of
potential growth was possible due to high investment and rapid productivity increases.
Consumer price inflation spiked temporarily in 2004 because of a surge in food prices,
but inflation returned quickly to low levels thereafter.
2.6
However, external imbalances were building up. While import growth was rapid,
it was outpaced by even stronger export growth. As a result, the external current account,
which had been in small surplus since the early 1990s, rose sharply and reached over 7
percent of GDP in 2005. As discussed in Chapter 1, the external imbalance emerged in
large part because of China’s particular pattern of growth, with an increasing part of the
demand for China’s products coming from abroad instead of domestically.
2.7
Per capita incomes rose on average 8.9 percent per year during 2001-05, raising
living standards rapidly, also compared to other countries. However, again in part
because of China’s pattern of growth (See Chapter 1), household incomes lagged behind
overall economic growth and rural incomes lagged urban ones, with average real growth
of 6.2 percent in rural areas in this period versus 11.3 percent in urban areas.
2.8
Thus, overall, a favorable overall macroeconomic performance during this time
coincided with some emerging imbalances linked to China’s pattern of growth.7
Key Objectives in the 11th 5YP on “Stable Macro Economy”
2.9
The 11th 5YP set the following key objectives:




Annual average GDP growth of 7.5 percent
Transfer of 45 million “rural labor forces” and an urban unemployment rate of
below 5 percent
Prices “basically stable”
International trade “basically balanced”
Key Initiatives and Developments
2.10 While some incremental policy changes were made, the broad orientation of
macroeconomic policies continued. Changes include: (i) some more flexibility in the
exchange rate regime — the RMB strengthened against the US dollar and, especially in
the second half of 2008, also in (trade weighted) effective terms; (ii) some greater use of
For a useful overview of China’s economic data, and comparison with peer countries, please see the
World Bank’s “at a glance data” in http://devdata.worldbank.org/AAG/chn_aag.pdf
7
12
interest rates as a macroeconomic policy tool; (iii) increased use of price controls and
related administrative measures during an episode with rising inflation; (iv) a more active
role of fiscal policy in macroeconomic management, reflected in a reprioritization of
fiscal spending and a planned expansion of fiscal policy in 2009.
(i) Growth
2.11 Overall GDP growth was very strong, at almost 12 percent in 2006 and 2007,
much higher than envisaged and also higher than potential output growth (Figure 2.1).
Economic growth is likely to be affected considerably by the global slowdown that is
taking shape. However, China’s domestic economy continues to have solid momentum.
As a result, China should have little problem meeting the 11th 5YP’s objectives on GDP
and GDP per capita growth (Figure 2.2).
2.12 However, there has been little decisive progress with rebalancing. The pattern of
growth remained unchanged during 2006-07 and in the first half of 2008 because the
underlying drivers, including the policies accentuating it, had not changed materially.
Growth continued along familiar lines, powered by industry and, on the expenditure side,
exports and investment.8 Industrial production decelerated sharply in end-2008, but this is
a cyclical phenomenon, caused by the global financial and economic turmoil rather than
the result of rebalancing.
Figure 2.1 Potential Growth Broadly Keeps Pace
with Actual Growth
18
16
Growth
(percent)
Figure 2.2 Overall Growth Target Seems in Easy
Reach
30
Potential GDP 1/
16
Source: NBS,
staff calculation
GDP growth
14
(percent) (RHS)
25
12
GDP
14
20
12
15
10
10
10
8
6
4
8
5
2
GDP (trn RMB)
6
0
4
0
1990
1994
1998
2002
2006
2010
1993 1995 1997 1999 2001 2003 2005 2007
Source: NBS, staff estimates
1/ Estimated using a growth accounting framework with
Cobb Douglas production function.
Source: NBS, staff estimates
(ii) Employment
2.13 Urban employment growth is contained by the overall pattern of growth
continuing along traditional lines, because the relatively labor intensive service sector
8
Several times in recent years concerns have been expressed about overcapacity. However, as argued in
Box 2 of our May 2006 China Quarterly Update, it is not obvious that there was substantial overcapacity.
13
continues to lag the industrial sector. However, in 2006 and 2007 economic growth was
so fast that urbanization and urban employment creation continued apace. 20.2 million
new (urban) jobs were created in 2006 and 2007 and an estimated 25.3 million workers
moved to urban areas. The urban unemployment rate stood at 4 percent in 2007, lower
than the target set in the 11th 5YP. Unemployment pressure is set to increase as the
impact of the international downturn intensifies.
(iii) Inflation
2.14 Sharp increases in food prices pushed up overall inflation to a peak of 8.7 percent
in February 2008 (Table 2.2). During this period, underlying inflation pressures have
remained modest and core inflation has remained modest. With food price pressures
subsiding, headline inflation came down since May 2008 even as additional pressure
remained from higher prices of energy and raw materials. Looking ahead, with energy
and raw material prices sharply lower, inflation is likely to continue to decline and it may
be very low in 2009. Throughout the recent inflation episode China’s real economy has
shown to be flexible enough to absorb exogenous price shocks. However, risks and
uncertainties about future price developments are accentuated by the conduct of monetary
and exchange rate policy, with monetary policy constrained by the limited flexibility in
the exchange rate.
Table 2.2 Main Macroeconomic Indicators
Real GDP (production side)
Consumer prices (period average)
Fiscal balance (% GDP)
Current account balance (% GDP)
2005
10.4
1.8
-1.2
7.1
2006
11.6
1.5
-0.5
9.5
2007
11.9
4.8
0.7
11.3
2008 WB 1/
9.4
6.5
-0.4
9.3
Source: NBS, SAFE, Ministry of Finance.
1/ World Bank estimation.
2.15 Since early 2007, overall inflation picked up as a result of sharply rising
international and domestic food prices (Figure 2.3). For a few years now, sharp increases
in global industrial commodity prices had driven up China’s raw material prices, but the
impact on consumer prices had been modest. Oil prices also soared, internationally, but
this was only partly reflected in China’s prices because of price controls. However, food
prices affected households and the CPI more significantly (they have a weight of around
1/3) and more directly. Pork prices soared during 2007, in part because of a disease that
discouraged farmers from growing pigs. In addition, prices of internationally traded food
products such as grain and edible oils rose sharply, in part because of higher energy
prices and diversion of grain production for use as bio-fuel. The impact of international
prices on China’s food prices has become increasingly important, particularly since the
opening up of China’s markets upon WTO entry.
2.16 Headline consumer price inflation has been receding throughout 2008. The impact
of earlier increases in prices of food, energy, and raw materials started to fade from the
(yoy) inflation data. During this inflation episode, spill-over of higher headline inflation
into wages and “core” consumer prices (CPI excluding food and energy) has remained
14
modest.
2.17 The modest extent of spill over in part also reflects policy responses. Monetary
conditions were tightened in order to contain inflationary expectations. Interest rates were
raised somewhat and administrative measures including credit quotas were used to
contain monetary aggregates. The exchange rate was also made somewhat more flexible.
The pace of appreciation against the US dollar accelerated in the first part of 2008; while
appreciation vis-à-vis the US dollar halted later in 2008, US dollar strength meant that the
effective exchange rate appreciated considerably in 2008. In addition, during the height
of the inflation episode, price freezes on specific items were introduced. (see below).
Figure 2.3 The Rise and Fall of Food Price Driven
Inflation
25
20
Change
(percent
yo y)
Fo o d prices
30 Change
(percent,
25 yoy)
No n-fo o d prices
20
Headline CP I inflatio n
15
Figure 2.4 Although a Price-Wage Spiral is is
Unlikely, Wage Growth has Remained Robust
Unit labor costs
Wage, nominal (official)
15
10
10
5
5
0
0
-5
-5
2001
2002
2003
2004
2005
2006
2007
2008
Source: NBS, staff estimates.
1/ International prices weighted using weights in China’s
food imports.
-10
2001 2002 2003 2004 2005 2006 2007 2008
Source: NBS, staff estimates.
(iv) International Trade
2.18 The objective of basically balanced trade has clearly not been achieved during the
first half of the 11th 5YP. In 2006 and 2007, export growth continued to soar, outpacing
import growth. As a result, China’s current account surplus surged to around 11 percent
of GDP and is approaching 0.75 percent of global GDP. In 2008, the external surplus
increased further in absolute terms, despite a slowdown in the world economy. This not
only contributes to imbalances in the pattern of demand in China, but also causes
frictions internationally. Prospects are for a plateauing of the surplus (at 9-10 percent of
GDP) but a material decline is not in sight.
2.19 As explained in Chapter 1, these large external imbalances are in large part a
result of China’s particular overall pattern of growth. Chapter 1 discussed the policies
that accentuated this pattern. China’s exchange rate policy is one of these key policy
factors, in particular the limited flexibility of the exchange rate and the reluctance to have
the exchange rate appreciate in line with fundamentals. Given China’s stage of
development, the beneficial impact of more rapid introduction of exchange rate flexibility
for monetary policy—granting it independence—probably outweigh the potential
15
detrimental impact of more exchange rate flexibility on the real economy. Also, given the
strong underlying competitiveness position of China’s manufacturing sector and the need
to rebalance the pattern of growth, a stronger effective exchange rate seems appropriate.
2.20 China’s massive current account surplus complicates monetary management. The
current account surplus, together with capital inflows generate large overall balance of
payments surpluses which require constant sterilization in the form of central bank bills
issuance and reserve rate hikes. While earlier in 2008 a lot of attention was focused on
the capital inflows—speculative inflows in particular—these inflows are in large part also
a function of the current account surplus because the latter creates the expectation that the
currency can only appreciate in the future, inducing more capital inflows.
2.21 Per capita incomes rose rapidly in 2006 and 2007 in both urban and rural areas
(Table 2.3). Rural incomes have continued to lag urban ones. This is almost unavoidable,
given China’s capital-intensive, industry-led growth pattern (Chapter 1). Nonetheless,
rural incomes have grown impressively, raising living standards (Chapter 5).
How Have Macro Policies Evolved during the 11th 5YP?
2.22 The limited degree of exchange rate flexibility has constrained interest rates from
rising sufficiently in response to domestic considerations. As CPI inflation rose to over 8
percent earlier in 2008, deposit and lending rates were increased only modestly, resulting
in significantly negative real interest rates that seemed inappropriate with regard to the
macroeconomic situation and adds to risks in the financial sector. Monetary conditions
were still tightened, largely via credit controls. But it was risky and distortive to have
such low real interest rates. A key reason why interest rates were so low is that, under the
existing exchange rate regime, and with the balance of payment surpluses, the authorities
were reluctant to raise domestic interest rates, for fear of attracting capital inflows. The
low interest rates boosted the demand for credit and have at times contributed to increases
in prices of stocks and houses, although China’s overall increases in housing prices are
low in international comparison.
Table 2.3 Per Capita Household Incomes (growth, in percent)
Urban
Nominal
Real
Rural
Nominal
Real
2003
2004
2005
2006
2007
10.8
9.7
11.8
8.2
11.8
10.0
12.4
10.7
17.2
12.2
3.9
2.2
12.8
7.6
14.6
12.2
8.5
6.9
15.2
9.3
Source: National Bureau of Statistics.
2.23 The exchange rate regime has gradually evolved and the exchange rate has
gradually appreciated. Since July 2005, the exchange rate is officially set with reference
to a basket of currencies instead of being pegged against the US dollar. Since then, in the
16
face of the large and growing external surplus, the RMB has appreciated almost 21
percent against the dollar up to November 2008. On a trade weighted basis, the
appreciation has been more limited. According to the IMF, the nominal effective
exchange rate appreciated 15 percent between July 20, 2005 and mid November 2008.
While exchange rate flexibility also increased somewhat, it is still modest compared to
what is needed to discourage the kind of “one way bets” that encouraged financial capital
inflows (called “hot money” in China) in the first half of 2008.
2.24 In line with the government’s strategic direction, the use of interest rates to affect
monetary conditions has increased somewhat, but it has remained limited. Greater
reliance on the interest rate instrument has been prevented by the lack of exchange rate
flexibility at a time when domestic considerations called for different interest rates in
China than in the US. Specifically, in order to contain inflation, the government since
2007 has aimed at tightening monetary policy. However, with the interest rate differential
between China and the US having turned positive after the recent US Federal Reserve
cuts, the authorities were concerned that higher interest rates would attract more capital
inflows (although it is not clear how high interest sensitive capital inflows are). This
external constraint kept domestic interest rates lower than they otherwise would be.
Interest rates were increased during 2007, but these increases lagged far behind the rise in
inflation. As a result, administrative measures and window guidance were used to affect
bank lending. The tightening of window guidance at the end of 2007 appears to have
been relatively successful in reducing credit expansion, although the success of such
measures is difficult to maintain for long periods without economic costs. Using
administrative instruments instead of interest rates adds risks and distortions to the
financial sector, and it would be best to reduce reliance on them over time.
2.25 The government in 2007 introduced several administrative and fiscal (taxation
and subsidy) measures to dampen price rises, keep items affordable, and contain
inflationary expectations. Administrative measures may serve a useful purpose in the
short run. However, in the medium term, the detrimental incentive effects that they
generate are likely to outweigh the benefits. That is why the government announced its
intention not to rely on them for too long and, after inflation had fallen considerably the
government announced in November 2008 that the price controls would be removed.
2.26 In 2005, fiscal policy moved from “proactive” to “prudent”, but in end 2008 it
was shifted back to proactive because of the pronounced global slowdown. Indeed, China
is in a strong macroeconomic position to stimulate demand. Fiscal policy measures are
particularly well suited to support growth, because they can, if well-designed, also
contribute to the much-needed rebalancing of the economy. Easing fiscal policy can be
done via higher spending, especially the priority areas covered in other chapters including
programs to increase energy efficiency or in the social sectors, or tax cuts. In the
meantime, while fiscal transfers to poor regions have increased, the fundamental inter
governmental fiscal system has not undergone significant change.
2.27 The underlying drivers of growth did not change materially. There has been some
tentative adjustment of structural policies underlying the pattern of growth, including
17
fiscal policy, the pricing of land, enforcing environmental legislation. But, these
adjustments have been small, and given the momentum that China’s industrial sector,
they seem not to have been large enough to “tilt the balance”.
Emerging Issues and Assessment
2.28 While China is challenged by an economic slowdown that is set to intensify,
China has so far succeeded in combining rapid economic growth with broadly stable
macroeconomic conditions. Macroeconomic stability in China benefits from solid
macroeconomic fundamentals, including a sound fiscal position, while growth is also
benefitting from progress with reform, opening up, and moving to a market economy.
2.29 However, the overall pattern of growth remains largely unchanged, contributing
to the persistence of external imbalances and complicating the achievement of several
other objectives of the 11th 5YP, notably increasing energy efficiency. The challenge
ahead is to rebalance the pattern of growth without sacrificing growth unnecessarily.
Broadly, 5 types of policies would help rebalancing. In several of these areas, policy
plans and/or proposals are in the pipeline although that does not mean that they will be
introduced soon.
2.30 First, several macroeconomic and structural measures will help to stimulate
domestic consumption and stimulate the services sector:

Continue to shift government spending from investment to health, education,
and social safety. Chapter 6 described many recent initiatives in this direction,
which is encouraging in this regard;

Appreciate further the exchange rate to shift production from tradables to nontradables and increase exchange rate flexibility to give more independence to
monetary policy;

Further strengthen financial market opening and reform, to improve the
efficiency of the allocation of capital—thus keeping growth up with less
investment—and increase the role of consumption;

Expand the dividend policy for State Owned Enterprises (SOEs) that has been
introduced on a moderate scale and improve corporate governance, to remove
the over-investment bias, especially in large, industrial SOEs;
2.31 Second, several price and tax measures would help rebalancing by readjusting the
relative attractiveness of manufacturing production (tradables) over producing services
(non tradables):

Eliminate the underpricing of industrial inputs—land, energy, water, utilities,
natural resources, and the environment through price increases, tax measures,
and/or pollution charges. Accelerated energy price reform would allow prices
18
to reflect the full costs of supply, including environmental and depletion costs.
The recent adjustment in fuel product prices is a step in the right direction.

Further remove distortions in the tax system that subsidize and stimulate
manufacturing, including from the VAT system and remaining preferential tax
treatment of FDI.

Remove remaining restrictions on the development of a thriving services
industry. Addressing, as planned, monopolies and oligopolies in several
service sectors would be important, as is removing other barriers including by
vigorously implementing WTO agreements.
2.32 Third, further relaxing restrictions on the movement of labor and land transaction
would facilitate rural-urban migration and mitigate rural poverty. Relatedly, building on
the recent initiatives described in Chapter 6, the fiscal system could be improved to
provide host cities with more incentives to deliver social services to incoming migrants.
2.33 Fourth, institutional reforms can be introduced to give local decision makers
stronger incentives and better tools to pursue rebalancing. A key is to strengthen
accountability, especially via the performance evaluation of local officials and
enforcement of laws and regulations. Last year’s measure to include land revenues in the
local government budget, rather than as part of the extra-budgetary funds managed by
land bureaus, could improve the governance of these funds and reduce the incentive to
pursue a land-intensive development pattern.
2.34 There is room for more active use of fiscal policy. The rebalancing of the
economy and harmonious society that the government aims for relies considerably on
fiscal policy measures. With fiscal revenues increasing rapidly, calls have intensified for
a more ambitious government and more active fiscal policy in this regard. As discussed
in Chapter 6, the government is starting to move in this direction. Meanwhile, with the
world economy going through a tough and uncertain time, many in and outside China
look at the government to consider supporting growth with fiscal policy.
2.35 Reform of the intergovernmental fiscal relations would allow poor regions to have
the resources to carry out improvements in the social sectors. Inadequate local funding
(and capacity) in poor regions is a serious constraint on further progress in many areas,
including the delivery of rural services, social protection, education, health, and resource
efficiency. The reasons for these problems are well-known: sub-national governments in
China are responsible for a much larger share of spending than in most other countries. In
the absence of significant net transfers from rich to poor regions or other revenue sources,
large disparities in spending per person on public services are unavoidable. Moreover,
income-poor but resource-rich provinces are currently not adequately compensated when
their resources are extracted for national development. Reform of the intergovernmental
fiscal system is required to fundamentally address the problem. Such reform would need
to include higher net transfers via the center from rich regions to poor regions, notably
through higher equalization grants, possibly combined with further changes in spending
19
responsibilities between sub-national governments and the center. In addition, China
should consider options for devolving more revenue sources that benefit poor regions.
Higher resource taxes provide an opportunity to grant the poor provinces higher tax
shares and make the poor provinces less dependent on fiscal transfers. Payments for
environmental services (such as water, land conversion rights) could become revenue for
the poor provinces as well.
2.36 Increased government spending puts a premium on the efficiency of spending.
The recent increase in spending and introduction of many new initiatives call for more
systematic and rigorous monitoring and evaluation frameworks. This involves more
research and analysis to develop better monitoring indicators, focusing on results and
quality, drawing on international experience and benchmarks; and developing a robust
information system to track progress. More can be done to nurture a culture of evidencebased evaluation and building capacity for it. There needs to be better linkage between
results of evaluations and adjustments in policies, priorities, and financing. In addition,
stronger accountability is required, and the recent move to expand the local officials’
evaluation system to include objectives of the 11th 5YP should be helpful in this regard.
Fragmentation of various programs, while probably unavoidable in a big country like
China, calls for further efforts at consolidation and coordination.
2.37 Administrative tools need to be augmented by increased reliance on market
incentives and regulatory means. So far, rapid progress has been achieved through
administrative measures in the areas of energy efficiency and environmental pollution.
However, this rate of progress may be difficult to sustain in the future without greater
reliance on market incentives and the regulatory system, including the criteria used for
performance evaluation of local government officials. There is increasing urgency in
building a policy and institutional framework that uses market-based instruments to
encourage rebalancing. Price reforms are called for, especially in the areas of energy and
resources pricing and taxation, but China’s grain price policies may also need to be
adjusted to bring domestic prices closer to international ones. Regulatory measures could
include environmental emission standards, consumer products labeling, and fuel and
building efficiency standards. Vigorous enforcement of regulations and standards will, of
course, be equally important.
2.38 Economic policymakers will need to balance short-term macroeconomic
considerations with medium and long term objectives and the strategic direction of
reform. For example, policy makers need to balance the need to reduce inflation in the
short term with the need to improve efficiency and reduce resource intensity and
pollution. As discussed in Chapter 4, this is a particularly pressing issue for energy
prices, where the 11th 5YP objectives of improving energy efficiency call for which
pricing energy in line with scarcity. If, as many expect, international oil prices were to be
sustained at high levels, Chinese retail prices of fuel would have to increase significantly.
This can be done gradually. It would help considerably, though, if a calendar of price
increases is announced in advance so that consumption and investment patterns have time
to adjust accordingly.
20
3.
Optimizing and Upgrading of the Industrial Structure
Background and Key Objectives
3.1
Over the past three decades, China has experienced improvement in industrial
structure made possible by market-oriented reform and opening up. The 10th 5YP period
(2000-05) also witnessed significant progress in industrial structure upgrading. Between
2000 and 2005, the share of the primary industry in GDP dropped from 15.1 percent
down to 12.5 percent; R&D as a share of GDP increased from 0.9 percent to 1.3 percent;
the share of hi-tech industries in GDP rose from 2.8 percent to 4.4 percent; and labor
productivity of Chinese industrial enterprises more than doubled in real terms.9, 10
3.2
The 11th 5YP aims to implement the “scientific development concept”, which
entails a shift to economic growth based more on increases in efficiency and knowledge
as opposed to input of resources. This requires fundamental changes in the industrial
structure. Accordingly, one of the “policy orientations” of the 11th 5YP is: “Promoting
development by relying on the optimization of the industrial structure, making the
adjustment of economic structure as the central theme, promoting the shift of the
economic growth pattern from one of industry-driven, quantitative expansion driven to
one driven by coordinated development of the three industries and optimization and
upgrading of the structure.”
3.3
Judging from the “Main Tasks and Strategic Priorities” the government sets itself
in the 11th 5YP in the area of “optimization of the industrial structure”, the government
sees improving competitiveness and upgrading industry as the key overall task here, with
obtaining safe and clean energy as a smaller task.11
3.4
The main objectives in optimizing and upgrading the industrial structure in the
th
11 5YP are:

A more rational structure of industries, products and industrial organization;
China’s data defines five sectors as “hi-tech industries”: (i) pharmaceuticals, (ii) aircrafts and spacecrafts,
(iii) electronics and communication equipments, (iv) computers and office equipments, and (v) medical
equipments and measuring instruments.
10
The productivity data refers to SOEs and large non SOEs.
11
These tasks are accelerate development high-tech industry (electronic, information, and manufacturing
industries; bio industry; air space industry); equipment manufacturing industry (major technical equipment,
automobile, shipbuilding); optimize energy industry, with conservation, with coal as basis, build stable,
economic, clean and safe energy (coal, electric power, petroleum and gas, renewable); adjust raw material
industrial structure and distribution (optimize metal industry, adjust distribution chemical industry); light
and textile industry; informatization.
9
21

Increases in the ratios of service sector value-added to GDP and service sector
employment to total employment of 3 and 4 percentage points, respectively;

Enhancement of the capacity for indigenous innovation and a rise in the ratio
of R&D to GDP to 2 percent;

Emergence of a troop of well-performing companies with self-owned
intellectual property rights, well known brands and strong international
competitiveness.
3.5
In operationalizing these objectives, the 11th 5YP also stipulates specific action
plans for 15 industrial sectors in six chapters (Chapters 10-15) in Part III under the
headline “Promoting Optimization and Upgrading of Industrial Structure”. 12 These
action plans are supplemented by 7 “special programs (zhuanxiang)” for hi-tech
industries and 10 “priorities (zhongdian)” for equipment manufacturing industries. The
content of these action plans can be viewed as a long “to-do” list. Examples include
accelerate the development of hi-tech industries; build industrial bases of software,
micro-electronics and optical electronics; raise the market share of automobiles with selfowned brands (zizhu pingpai); and build shipbuilding bases in Bohai circle, Yangzi river
delta and Pearl River delta.
Evaluation of Developments So Far under the 11th 5YP
3.6
Optimization and upgrading of the industrial structure is difficult to measure
objectively. In particular, there is no universal agreement on what constitutes an
improvement of the industrial structure. In view of the structure of the 11th 5YP and the
constraint of data availability, this chapter adopts a combination of three approaches.
3.7
The first is to assess progress made in implementing the “to-do” list as spelled out
by the 5YP itself. The rationale of this approach is that this list presumably defines the
“optimized” industrial structure that policymakers had in mind.
3.8
The second is to look at the progress in achieving the overall objectives of the
5YP as measured by the three quantitative indicators defined in its Chapter 3 and Box 2,
namely, the share of service sector in GDP and total employment, and the ratio of R&D
to GDP.
3.9
The third is to go beyond the 5YP and look at some measurable indicators that
could be seen as reflecting the overall soundness of the industrial structure. This
evaluation looks at (i) progress in increasing productivity in industry and catching up
with other countries and (ii) the return to capital of industry and employment creation.
The 5YP is followed by sectoral 5YPs, such as “the 11th 5YP for High and New Tech Industries” and the
“11th 5YP for the Steel Industry”, which are in most cases detailed action plans for the sector concerned.
12
22
Progress with the Tasks of the 11th 5YP
(i) Methodology
3.10 The to-do list contained in Part III of the 5YP is a long one. This chapter
concentrates on 45 tasks as examples, selected from the to-do list contained in three of
the six chapters, namely:



Chapter 10: Accelerating the development of hi-tech industries;
Chapter 11: Revitalizing equipment manufacturing industries; and
Chapter 13: Adjusting the structure and spatial layout of raw material
industries.
3.11 The 45 tasks are examples instead of forming a representative sample in statistical
sense. Given the need to limit the scope of investigation, they are selected based on a
number of considerations. First, the development of hi-tech, equipment manufacturing
and materials industries jointly has a profound impact on the progress of the whole
Chinese industry in closing the gap with the international technological frontier. That is
because hi-tech industries tend to undergo the most radical technological change while
equipment and material industries provide the basis for technological upgrading for all
manufacturing industries and beyond. Second, Chapter 12 of the 5YP (Develop Energy
Industry as a Priority) is not included since Chapter 4 of this report deals with energy
efficiency specifically. Third, Chapter 14 (Raising the Level of Light and Textile
Industries) and Chapter 15 (Promoting Informationalization Actively) are of a secondary
importance compared with Chapter 10, 11 and 13 in that the upgrading of light and textile
industries is less technology-intensive, and informationalization partially overlaps with
the development of hi-tech industries. Within Chapters 10, 11 and 13, the 45 tasks are
selected mostly in view of measurability of progress and data availability.
3.12 Results of the investigation are presented in Annex 3, 13 where for each task
evidences of implementation progress is presented, supplemented by information on
relevant actions taken by the government when available. For summary measure of
overall progress in implementation, a simple rating is applied that classifies progress with
the tasks as satisfactory or questionable.
(ii) Results
3.13 This investigation suggests that overall progress in carrying out the tasks that the
government set for China in the 11th 5YP to optimize the industrial structure is
satisfactory. Out of the 45 tasks, the implementation progress of only 8 appears to be
questionable.
Annex 3 draws on Yang Jianlong and others, “Evaluation of the Progress of 11 th 5YP in Optimization
and Upgrading of Industrial Structure”, background report prepared for the World Bank. March 2008.
13
23
3.14 Accelerating the development of hi-tech industries. As indicated in Annex 3, hitech products such as integrated circuits, software, bio-pharmaceuticals, sub-line
airplanes and satellite navigation services have registered significant output growth and
technological progress appears remarkable in a number of important areas such as highpower computing, next generation internet, and non-grain based bio-energy. A major
decision has been taken to launch China’s large airplane program. The pace of
development of hi-tech industries has accelerated. However, given the experience during
2006-07, it does not appear realistic to reach the target set by the 11th 5YP for Hi-Tech
Industries of 10 percent of value added of hi-tech industries in GDP (Figure 3.1).
3.15 A look at the pace of
developments prior to the 11th 5YP
period suggests that the target may
have been set too high.
Figure 3.1 Share of Value-Added of Hi-Tech Industries
in GDP, Realized and Targeted, 1995-2010
12
Percent of
GDP
10
3.16 Revitalizing
equipment
8
manufacturing industries. Strong
6
growth has been achieved in the
automobile
and
shipbuilding
4
industries. Implementation progress
2
in the priority areas as identified by
th
the 11
5YP is generally
0
satisfactory. According to Annex 3,
1995
2002
2004
2006
2008
2010
technological
progress
seems
Source:
National Bureau of Statistics: China Statistics
particularly significant in the
Yearbook on High Technology Industry 2007, China
manufacturing of environmental
Statistical Yearbook 2007
protection equipment. However,
several targets of “localization (guochanhua)” or import substitution seem to be difficult
to fulfill. For example, the domestic market share of automobiles with “self-owned”
brands increased only by 1 percentage point in 2005-07 to reach 26 percent, compared
with a target of over 50 percent by 2010. In the case of the market share of domestically
made digital machine tools, the 11th 5YP target is 50 percent, while a gap of 19
percentage points remained in 2006 and the progress made in 2006 was only 0.6
percentage point.
3.17 Adjusting the structure and spatial layout of raw material industries. In the
material industries, the objective is largely about consolidation and upgrading, including
lowering energy and resource consumption, reducing pollution, and raising product
quality, technology content and industry concentration. In the steel and construction
materials industries, remarkable progress has been achieved in raising energy efficiency
and reducing emission, as explained in greater detail in Chapter 4. However, in terms of
“adjusting the structure”, progress generally appears to have been much greater in adding
production capacity rather than in subtracting production capacity that is inefficient,
highly energy consuming, and/or polluting. For example, in the aluminum industry, the
production of aluminum oxide, which the 5YP requires to “develop”, nearly doubled in
2005-06, while that of electrolytic aluminum, which the 5YP wants to “control”, still
24
grew by 21 percent in 2005-06. Most new projects that the 5YP stipulated to “build” have
seen significant progress. There also appears to have been some reduction of
“technologically backward capacity” of steel and cement. Moreover, steel sector
reorganization moved along the direction of 5YP in terms of market share of the largest
producers. However, large increase in that of the smallest producers has also been
reported, and total production capacity grew by an average of over 15 percent per year in
2006-07, even though the 11th 5YP called for “strictly controlling new capacity” to
contain growth. There are several reasons behind the massive expansion of production
capacity in steel and aluminum. On the financing side, the ability to channel back
increasingly large profits in full, combined with rapid loan growth, boosted investment.
More generally, in the context of China’s rapid and industry heavy pattern of growth,
enterprises had sufficient incentives to rapidly increase capacity in several sectors
including steel and aluminum.
(iii) Interpretation and Evaluation
3.18 Improving the industrial structure typically calls for industrial policy. Industrial
policy implies government intervention in the allocation of resources. It is controversial
among economists and policymakers around the world. The better markets function, the
weaker is the case for industrial policy. “Purists” say governments are generally not
better than the market in identifying potential “winners” (companies or industries with
good prospects that require help). Others say markets often do not function well enough
to have potential “winners” thrive. In this evaluation, we do not take a strong stance
either way. Nonetheless, the effectiveness and appropriateness of the policy actions taken
does deserve an assessment.
3.19 The central question in this regard is: are we sure that the targets and tasks set in
the 5YP really lead to improvement in industrial structure? What constitutes an
improvement in industrial structure?
3.20 This is a valid concern for several reasons. First, for some of the listed targets the
economic rationale may not be fully obvious. Many targets are about “make or buy”:
higher production or lower imports. For such targets, it is not always clear that more
production (less import) always means a better industrial structure. For example, it is
often assumed good news when Chinese firms are able to make a product that they had to
import before. However, no one would think it a good idea to try to make everything at
home. Then there is a question of optimality: does the government have enough insight a
priori to decide that it is good for Chinese firms to make machine A but continue
importing machine B. If, in setting the target, the government misunderstands the market
trend and the comparative advantage of Chinese producers, it might not be bad news if
Chinese firms become able to make machine B but continue importing machine A.
3.21 Second, there may be conflict among some of the targets. Conflicts in targets are
not unique to China’s 5YP. However, without weighing schemes or rules on how to make
trade offs, it is not clear how to judge some actions. For example, when Shanghai
Automobile takes over Nanjing Automobile, it helps achieving the target of “the
25
emergence of some enterprises that have production capacity of over one million
vehicles”. However, it makes it more difficult to achieve the target of 50 percent market
share of “self-owned brands,” since Shanghai Automobile is not a producer of “selfowned” brands. Indeed, achieving the latter target would require fast expansion of
producers such as Qirui and Geely, not the joint ventures such as Shanghai Automobile.
(iv) Program or plan? — How does the government steer the allocation of resources
and intervene to carry out the tasks it set?
3.22 This 5YP is meant to be a program (guihua) instead of a plan (jihua). The term
“plan”, which is the trademark of the pre-reform central planning economy, was
deliberately replaced with “program” to highlight the intention of having a 5YP that fits a
market economy. However, in the area of improving the industrial structure, the
delineation between government involvement and the activities of enterprises and the
market is not very clear. Since improving the industrial structure is in part about
improving the resource allocation among industries, sectors, and products, a “program”
should leave a sufficiently large role for the market to play. Indeed, in most of the
examples included in Annex 3, enterprises are in principle supposed to lead the activities
in the “to do list”, with the government having a facilitating role. However, a program
should express the government’s expectation of economic developments instead of
setting targets/tasks for enterprises and the market. Nonetheless, the 11th 5YP has many
such targets/tasks.
3.23 Even if the 5YP sets detailed targets/tasks, it could have been far from a “plan” if
the government has few instruments to implement its intention. If the government is
unable to intervene in the microeconomic decision making of enterprises and consumers,
the targets/tasks it set in the 5YP, no matter how intrusive, would remain no more than an
expectation, or projection. How much the 5YP departs from a “plan” is a function of the
instruments the government is able and/or willing to use to implement its targets. By this
standard, Chapters 10, 11 and 13 of Part III of the 11th 5YP are perhaps somewhere in
between a “program” and a “plan”. A conclusive analysis would require systematic
evidence which is mostly not in the public domain, but anecdotal evidence indicates that
the government could and did play a powerful role in resource allocation to implement
the 5YP targets on industrial structure changes.
3.24 The principal instruments used by the government to direct resource allocation in
order to “optimize the industrial structure” are the following:

Project approval appears to be most powerful one. While the recent reform
of the “investment system” has changed government “approval (shenpi)” of
investment projects into “review and permission (hezhun)”, in practice the
difference seems to have been insignificant. And it is the 5YP and
subsequently approved 5YPs for specific industries and sectors that provide
the basis for the government decision in its “review and permission”. A
project that has failed to get “review and permission” from the government
will be tremendously disadvantaged compared with others that have obtained
26


it, for example, in getting access to land, bank loans and the stock market.
Government investment is another instrument that is often employed jointly
with project review and permission. For example, when the government
“organizes the implementation (zuzhi shishi)” of a program, it often means
approval of certain projects (and disapproval of others) in combination with
government investment in them.
Production and import licenses are also important instruments. For example,
disqualification of 116 automobile producers (see Annex 3) is one step taken
to protect and increase market shares of large producers. Similar intentions
appear to be behind the proposed introduction of licenses for shipbuilding. In
the case of the steel and cement industries, government action has gone far
beyond licensing. It organized the work of dismantling steel making devices
and melting them in furnaces. Import licenses are used to protect domestically
made equipment manufacturers from foreign competition, as for example in
the case of petro-chemical equipment detailed in Annex 3.
3.25 These direct interventions are supplemented by more indirect instruments such as
tax incentives, price subsidies, and other kinds of “favorable policies”.
3.26 The extensive government involvement in resource allocation through direct and
indirect intervention in microeconomic decision-making does help further the objectives
of the 11th 5YP. At the same time, it raises questions about the optimality of resource
allocation and the meaning of the observed implementation progress because it inevitably
suppresses the roles of consumers, producers, and market signals in resource allocation. It
is true that extensive market failures exist in China’s economy today, due to externalities
and under-developed markets. However, the market failure rationale of most targets in
Part III of the 5YP does not appear to be clear.
Progress in Meeting the Overall Targets of the 11th 5YP
3.27 The objectives of optimization and upgrading the industrial structure contain three
quantitative indicators. They are: the shares of the service sector in GDP and total
employment, and the R&D to GDP ratio.
3.28 Service sector. Based on recent trends, the target of a 3 percentage points increase
in the share of the services sector in GDP is not going to be achieved (Figure 3.2). On the
other hand, the target of a 4 percentage points increase in the share of the service sector in
employment appears to be achievable. Again, this raises question about the rationale of
the targets themselves, which seem to assume a relationship of 3:4 between the two
indicators. Such a relationship did not exist in the past (Table 3.1). There could be two
alternative interpretations of the results. First, the declining share of the service sector in
GDP shows that the services sector remains underdeveloped and its share in employment
could have been higher. Second, the rising share of the service sector in total employment
reflects the right allocation of labor among service sector and non-service sectors, and the
declining share of service sector in GDP is not necessarily something to worry about.
27
Further study is required to identify which of these is the right interpretation.
Table 3. 1 Changes in the Shares of Tertiary Industry in GDP and Employment
(percentage points)
Year
GDP
Employment
2000
1.01
0.90
2001
-0.23
0.70
2002
-0.85
1.30
2003
-0.44
0.80
2004
-0.59
0.80
2005
1.01
0.90
2006
-0.23
0.70
Source: National Bureau of Statistics, China Statistical Yearbook.
3.29 R&D expenditure. Continuing a clear upward trend, R&D as a share of GDP
increased continuously during 2001-06 (Figure 3.3). If this trend continues, the target of 2
percent of GDP by 2010 can be achieved. Business enterprises have been an important
driving force behind this trend. From 2003 to 2006, the share of business enterprises as a
source of R&D funding increased by 9 percentage points, while that of the government
dropped by over 5 percentage points (Table 3.2). This reflects the ongoing transition of
China’s innovation system from a government-led model to an enterprise-led model.
Figure 3.2
Percentage Shares of the Tertiary
Industry in GDP and Total Employment, Realized
and Targeted, 2000-2010
50
Percent
Figure 3.3 R&D Expenditure as Percentage of GDP,
Realized and Targeted, 1995-2010
2.5
45
Percent of
GDP
2
40
1.5
35
1
30
GDP
25
0.5
Employment
20
0
2000
2002
2004
2006
2008
2010
Source: National Bureau of Statistics, China Statistical
Yearbook
1995 1997 1999 2001 2003 2005 2007 2009
Source: National Bureau of Statistics, China Statistical
Yearbook on Science and Technology, 2007. Table 1-8.
3.30 This trend is likely to continue, not only because of the government’s
determination to promote indigenous innovation led by enterprises, but also because of
the competitive pressures facing Chinese enterprises. Despite the emergence of Chinese
enterprises as strong competitors in the global market, China’s industry as a whole is still
in an early stage of technological catch-up, and the gap to the international technological
frontier remains large. Currently, the global competitiveness of China’s leading
manufacturing sectors rests upon low input costs, scale of production, technology
absorption, speed of response to market demands and in the fulfillment of orders, and
increasing attention to quality (Yusuf and others 2005). Most leading Chinese enterprises
remain manufacturers and assemblers of products without possessing core technologies.
Even in joint ventures, core technologies mostly remain controlled by the foreign
partners. China’s export growth has been largely based on the expansion of low-wage
28
manufacturing utilizing imported components, equipment and technology (OECD 2007).
This has generated considerable pressure on Chinese firms to scale up their innovation to
ensure sustainable competitiveness. And such pressure is likely to further increase.
Table 3.2 China’s R&D Expenditure by Source of Funding, 2003-2006
Year
2003
2004
2005
2006
Total
R&D
(billion RMB)
Government
154.0
196.6
245.0
300.3
29.9
26.6
26.3
24.7
% by Sources
Enterprises
Foreign
Sources
60.1
1.9
65.7
1.3
67.0
0.9
69.1
1.6
Other
Sources
8.0
6.4
5.7
4.6
Source: National Bureau of Statistics: China Statistical Yearbook on Science and Technology, Table 1-10,
various years.
Soundness of the Industrial Structure — How to Measure Progress over Time?
3.31
What indicators can be used to measure the soundness of the industrial structure?

Productivity is often used to compare how advanced one industrial structure is
compared to another. Since 1978, China has caught up steadily with middle
and higher income countries in terms of productivity in industry and the
overall economy. This is the case for labor productivity and total factor
productivity (OECD (2005), He and Kuijs (2007), Bosworth and Collins
(2007).14

Rodrick and Hausman (2005) look at the sophistication of exports. Using their
constructed weighted sophistication of exports, they find that the degree of
sophistication of China’s exports is high compared to its level of GDP per
capita. However, they also found that the degree of sophistication did not
change much over time. One caveat with comparing the sophistication of
gross exports across countries is that China has a relatively large share of
processing exports, which have a high import content and modest domestic
value added. Amiti and Freund (2008) found that China’s exports increased
more than five times during 1992-2005, and its structure transformed
dramatically. The shares of agriculture and light manufacturing such as
textiles declined significantly; and the share of more sophisticated
manufacturing products such as consumer electronics, appliances, and
computers has grown. However, a large component of its export growth in
hard manufacturing has been in processing trade. The skill intensity of
China’s exports remains unchanged since 1992 once processing trade is
excluded. Nonetheless, being able to handle sophisticated processing exports
is an asset and requires hard and soft infrastructure. In other words, it may not
be necessary to discard processing trade completely in such analyses.
Annex 3 tables 1 and 2 of He and Kuijs have an overview of research results on China’s overall
productivity improvements and a comparison with other countries.
14
29

Cörvers and Meriküll (2007) look at the occupational structure of countries’
workforces, measuring the skill intensity.

Pender, in work for the European Commission, designed 3 types of
taxonomies of manufacturing industry, based on (i) factor input combinations;
(ii) skill requirements, and (iii) external service inputs.
(i) Labor Productivity
3.32 Labor productivity in Chinese industry continued to catch up with middle and
high income countries between 2005 and 2007, as shown in the Table 3.3. During this
period, labor productivity of Chinese industry increased by 22 percent, compared with 11
percent for middle income countries, 4 percent for high income countries and 3 percent
for the USA.
Table 3.3 Labor Productivity in China’s Industry, an International Comparison
(Constant US$ 2005, using GDP PPP)
Countries
China
Middle income countries
High income countries
USA
1995
5,435
10,198
49,593
58,352
2000
9,449
13,666
55,408
63,365
2005
11,112
17,352
61,515
73,816
2006
11,852
18,692
62,076
73,420
2007
13,582
19,323
63,749
75,804
Source: WDI, NBS, CEIC, and staff estimates.
3.33 Both SOEs and non-SOEs have recorded continued strong labor productivity
growth (Figure 3.4). However, SOEs have been particularly aggressive in raising labor
productivity. They overtook non-SOEs around 2000 and managed to widen the gap
further in the following years. This was made possible by a combination of large scale
lay-offs in the SOE sector and rapid capital deepening because of heavy investment.
Large lay-offs reduced industrial SOEs’ employment from 37.5 million in 1998 to 18.0
million in 2006. Total fixed assets of industrial SOEs nearly doubled in real terms in this
period. The result is a similar widening gap between SOEs and non-SOEs in terms of
capital intensity, as shown in Figure 3.5.
3.34 The continuous improvement in labor productivity and catch-up with more
advanced economies suggests upgrading of the industrial structure. At least, there are no
serious barriers or weaknesses that block the rise in labor productivity. On the other hand,
the significant gaps between SOEs and non-SOEs in labor productivity and capital
intensity suggest the possibility of a significant role of capital investment and labor
shedding in pushing up labor productivity of SOEs. This makes it necessary to look at
two alternative indicators.
30
Figure 3.4 Labor Productivity in China’s Industry,
1998-2006
10,000
RMB per
person
20
18
16
Figure 3.5 Capital Intensity in China’s Industry 1/
35
SOEs
30
Non-SOEs
14
10,000
RMB per
person
SOEs
Non-SOEs
25
12
20
10
15
8
6
10
4
5
2
0
0
1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: China Statistical Yearbook, various years
1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: China Statistical Yearbook, various years.
1/ Fixed assets per worker.
(ii) Alternative Indicators
3.35 Additional insight in the soundness of the industrial structure can be obtained by
measuring the return to capital and job creation of industrial enterprises. The return to
capital is a proxy of the operation efficiency of enterprises, and a low return on capital
often reflects an unsound industrial structure. For instance, excessive capacity in a sector
typically leads to low profitability and an inefficient firm size increases cost.
Technological backwardness often places a firm in a low value added position in the
value chain, which may also lead to low and declining profitability if it fails to reflect the
comparative advantage of the country. Of course, as is the case for many other indicators,
return to capital is not a perfect one. Distortions in prices and barriers to entry and exit
may reduce the meaningfulness of indicators such as revenue, cost and profit.
Nonetheless, they remain useful proxies given data constraints. Job creation is a useful
proxy to gauge the extent to which the existing industrial structure reflects China’s
comparative advantage and contributes to the nation’s welfare.
(iii) Return to Capital
3.36 Two indicators are used to measure return to capital: the ratio of total pre tax
profit to total owners’ equity, and the ratio of the sum of total pre tax profit and total
financial expenses (mainly interest expenses) to total assets (Figure 3.6). 15 Both
indicators show that the improvement in return to capital of Chinese industrial enterprises
since 1998 continued in 2006 and probably stabilized in 2007. However, Figure 3.7
shows that non-SOEs outperform SOEs in return on capital, although the gap is smaller
now than it used to be. Since the data for 2007 are not strictly comparable with previous
years, the trend in 2007 needs to be confirmed later with annual data.
15
This data covers all state owned and controlled industrial enterprises and non-state industrial enterprises
with annual sales revenue over RMB5 million. Data for 2007 cover the first 11 months.
31
3.37 In sum, return to capital
indicators suggests that the
soundness of industrial structure
has improved steadily since 1998
and the trend has continued since
the 11th 5YP. That capital per
worker is consistently higher in
SOEs while the productivity of
capital is lower in SOEs may
suggest imperfections on the capital
market that prevent capital from
going to where it is most
productive. One caveat, though, is
that these findings are not adjusted
for
industry
effects.
Some
industries are by nature more
capital intensive than others, and
several capital intensive industries
are dominated by SOEs in China.
Figure 3.6 Return to capital of Chinese Industrial
Enterprises, 1998-2007
20
Percent
Profit/Sales
Return on equity 1/
16
12
8
4
0
1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: National Bureau of Statistics: China Statistical
Yearbook, various years.
1/ Profit / (Assets – Liability)
Figure 3.7 Return to capital of Industrial SOEs and Non-SOEs (above cut-off scale), 1998-2007
18
16
14
Rate of
return on
equity 1/
9
8
7
12
6
10
5
8
4
6
SOEs
4
Non-SOEs
2
0
Rate of
return on
total equity
2/
3
SOEs
2
Non-SOEs
1
0
1998 1999 2000 2001 2002 2003 2004 2005 2006
1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: National Bureau of Statistics: China Statistical Yearbook, various years.
1/ Profit/equity; 2/ (Profit + interest costs)/ total capital
(iv) Job Creation
3.38 Until recently, Chinese SOEs suffered from severe over-staffing. SOEs created
jobs but only at the expense of a low return to capital. After massive downsizing of the
SOE labor force in the second half of 1990s, this problem has been largely resolved.
However, China needs not only high return to capital but also job creation. The challenge
is to create jobs in a way that enhances the return to capital as well.
3.39 Capital intensity in China’s industrial enterprises increased in 2006, continuing a
trend since 1998 (Figure 3.8). However, the rate of job creation is much slower than that
of output growth and fixed assets growth.
32
3.40 A close look at SOEs and non-SOEs separately is revealing (Figure 3.9).
Employment of non-SOEs has grown largely hand-in-hand with output and fixed assets.
SOEs have been shedding labor continuously even as output and fixed assets grew
strongly. These general trends showed no significant change in 2006.
3.41 Overall, the data suggest
that non-SOEs may have been able Figure 3.8 Growth of Fixed Assets, Output and
to create more jobs while enhancing Employment of Chinese Industrial Enterprises, 19982006
labor productivity and the return to
capital. SOEs, on the other hand,
12,000
RMB
Fixed Assets
billion,
appear to have been able to raise
10,000
10,000
Industrial Value Added
labor productivity and the return to
persons
Employment
capital largely by increasing capital
8,000
intensity and shedding labor. With
6,000
the return to capital generally lower
in SOEs than in non-SOEs, the
4,000
constant increase of capital
2,000
intensity of SOEs raises concerns
about the efficiency of resources
0
allocation.
Excessive
capital
1998
2000
2002
2004
2006
intensity that fails to reflect China’s
Source: National Bureau of Statistics: China Statistical
comparative advantage would be a
Yearbook, various years.
serious flaw in the industrial
structure. On the labor market, it is possible that the high price of labor for SOEs—
because of social security charges—discourages their demand for labor. However, it
would take a more in-depth investigation to confirm the validity of these assertions.
Figure 3.9 Growth of Fixed Assets, Output and Employment of Chinese Industrial SOEs (left) and Non-SOEs
(right), 1998-2006
6,000
5,000
Fixed Assets
Industrial Value Added
Employment
RMB
billion,
10,000
persons
6,000
5,000
4,000
4,000
3,000
3,000
2,000
2,000
1,000
1,000
0
RMB
billion,
10,000
persons
Fixed Assets
Industrial Value Added
Employment
0
1998
2000
2002
2004
2006
1998
Source: National Bureau of Statistics: China Statistical Yearbook, various years.
2000
2002
2004
2006
33
Concluding Remarks
3.42
Key findings are the following:

The overall progress in carrying out the tasks that the government set for
China in the 5YP is satisfactory. The 5YP tasks appear to be achievable in
most areas examined, although there are also cases where progress has been
slow and it does not appear to be realistic to achieve the targets.

However, the extent to which progress in implementation improves the
industrial structure as expected is questionable. First, the economic rationale
for many listed tasks is not fully obvious. Second, there is conflict between
some tasks.

Anecdotal evidence points to continued extensive government involvement in
resource allocation through direct and indirect intervention in microeconomic
decision making. This helps achieving progress in 5YP implementation but
casts some doubt about the value of such progress in terms of improving the
industrial structure. The authorities may reconsider to what extent a list of
detailed “tasks” to be carried out is the right approach in an increasingly
market determined and private-sector led economy.

In terms of the three quantitative objectives of the 5YP regarding industrial
structure, two of them appear to be achievable, namely, a 4 percentage point
increase in the share of the service sector in total employment, and a 2 percent
R&D to GDP ratio. However, unless the trend observed since 2003 is reversed
in the coming three years, it seems unlikely that the share of the service sector
in GDP could be raised by 3 percentage points. However, caution is required
again in interpreting this. In setting the targets, the 5YP implicitly assumes a
3:4 relationship between the percentage point changes in the shares of service
sector in GDP and employment, which does not seem to correspond to
historical experience.

Looking at labor productivity in industry, China has continued to make
progress in improving the industrial structure in 2005-07, and the catch-up
momentum remains strong. However, the role of rising capital intensity of
SOEs, a result of labor layoff and capital investment, seems to have
contributed significantly to this trend.

In terms of return to capital, the first two years of the 11th 5YP have seen no
significant change in the general trend since 1998. Both SOEs and non-SOEs
registered remarkable improvement in the return to capital. However, the
return to capital in SOEs remains lower than in non-SOEs.

SOEs and non-SOEs differ sharply in terms of job creation. Non-SOEs have
been able to combine job creation with a high return to capital. SOEs, on the
34
other hand, appear to have been able to raise labor productivity and increase
the return to capital partly by increasing capital intensity and shedding labor.
With the return to capital generally lower in SOEs than in non-SOEs, the
constant increase of capital intensity of SOEs raises serious concerns about
the efficiency of resource allocation to SOEs. Excessive capital intensity that
fails to reflect China’s comparative advantage would be a serious flaw of the
industrial structure. Further study is required to confirm this.
3.43 Broadly speaking, despite the difficulty in defining an improvement in industrial
structure, these findings point to satisfactory overall progresses in implementing the 5YP
tasks and targets, and a largely sound industrial structure as of 2006-07. Weaknesses and
flaws exist in industrial structure, but they have been not significant enough to cause a
fall in labor productivity, return on capital and job creation of industrial enterprises.
However, the government is advised to review its role in setting specific tasks and targets
in the area of industrial structure vis-à-vis the role of consumers, producers and the
market, in relation to the instruments that are available in implementing them. It is likely
that the role of the government in microeconomic decision-making regarding the
industrial structure has been excessive. With the increased market orientation of China’s
economy, industrial upgrading is best pursued by measures that encourage innovation
such as improved IPR, venture capital markets, better governance of SOEs, and greater
access of private firms to capital markets.
3.44 This chapter also raises two specific issues that deserve further study. The first is
the optimal level of service sector development in terms of its share in GDP and
employment given China’s current stage of development. The second is the soundness of
the rising capital intensity of industrial SOEs in comparison with their non-SOEs
counterparts. Finally, much of the data for 2007 is not available yet, and two years is too
short for some actions to have impact on the soundness of industrial structure. The
assessment made in this chapter is therefore only preliminary.
35
4.
Increasing Energy Efficiency
Background and Key Objectives
4.1
China’s energy consumption during the 10th 5YP was much higher than
envisaged. China’s primary energy consumption rose by an average 9.9 percent per year
between 2000 and 2005, more than twice as fast as during 1980- 2000, reaching 2217
million tons of coal equivalent (mtce). By 2006 it already exceeded the higher bound
projection for 2010 made in the early 2000s by various agencies. This is partly due to
sustained high economic growth of more than 9 percent over the six year period, two
percentage points higher than expected. However, the other key reason is that the
contribution of industry to growth was particularly high during the 10th 5YP. As a
result, China’s energy intensity, as measured by the elasticity of energy consumption
growth to GDP growth, rose above 1 during the 10th 5YP, more than twice the average
elasticity during the four preceding five-year plans. As a result, the energy intensity of
China’s economy, after a long period of steady decline, shows signs of stagnation and
even slight increase.
4.2
If recent energy consumption patterns continued, they would pose major
challenges to China. If China’s economy were to grow at an average of 7.2 percent per
year and the average energy intensity remains at 1 in the next two and a half decades as
experienced by the developed and newly industrialized countries during the early stage
of industrialization, China’s energy consumption would reach around 12,750 mtce by
2030, equivalent to about 87 percent of world’s total energy demand today. That would
bring per capita energy consumption to about 75 percent of the current US level. Energy
use on this scale would depend to a considerable extent on massive coal consumption,
which ultimately would result in unacceptable environmental damage through
emissions of GHGs and other pollutants.
4.3
China’s government recognizes the energy and environmental challenges. China
is determined not to follow the development path of the industrialized countries,
pursuing a less energy intensive development path with energy consumption growth
lower than economic growth to the greatest extent possible. This would make China’s
fast growth more sustainable with lessened adverse domestic and global environmental
impacts. Accordingly, the 11th 5YP sets an ambitious target of a 20 percent reduction in
energy intensity. The Plan also incorporates seven additional indicators on water saving
and pollution control. This was the first time that quantitative indicators for energy
efficiency have been incorporated in a five-year plan.
Setting and Allocating the Target
4.4
The 11th 5YP emphasizes that policies will be developed to promote energy
saving and efficient energy utilization. Three types of energy savings are identified: (i)
36
structural, resulting from rebalancing the economic and industrial structure, particularly
reducing the share of energy intensive industries; (ii) technical, through technical
progress to reduce energy consumption per unit of product; and (iii) managerial, by
reducing energy waste during energy production, transportation, and consumption
through strengthening regulatory and administrative institutional capacity. The Plan
calls for concerted efforts to reduce energy use in key energy intensive sectors such as
iron and steel, non-ferrous metals, coal, electric power, chemical, construction material
as well as in the transportation sector. The Plan also highlights the role of pricing in
promoting resource saving and calls for “the development of a pricing mechanism
which would reflect supply and demand and the scarcity value of resources, so as to let
market force play a fundamental role in allocating resources.”
4.5
The Plan does not discuss how the energy efficiency target/indicators are to be
achieved. There is no explanation of how the target of a 20 percent reduction in energy
intensity was derived, nor the contributions expected from the energy saving factors
identified above, the potential saving from the key energy intensive industries, and the
institutional and policy changes that are required. No studies seem to have been done to
determine what can be realistically achieved before the target was adopted. It appears
that the target was based on some general considerations, including: (i) China has one
of the most energy intensive economies in the world, and, using market exchange rates,
China’s energy consumption per unit of GDP is 3-8 times higher than in OECD
countries; (ii) China had previously achieved an average of 4.1 percent reduction in
energy intensity per year over a 20 year period (1980-2000).
4.6
Several studies were conducted subsequently to determine how the 20 percent
reduction might be achieved and what might be the contributions from each of the key
factors. The most detailed one was done by a consortium headed by China
Development Research Center and funded by the Energy Foundation, a US NGO. The
key conclusions of the study are:

It is very difficult, but not impossible, to achieve the 20 percent reduction in
energy intensity in a five year period;

The probability of achieving the target depends on the pace of economic
growth: the higher growth, the lower the probability, as during periods of
high growth the contribution of industry to growth tends to be particularly
high;

Contributions from both technical progress and structural adjustment are
needed;

In the past, the contributions from technical progress varied from 31 percent
to 54 percent and from structural change from 45 percent to 69 percent,
depending on economic growth (varying from7.5 percent to 9.5 percent), the
higher growth, the higher the contribution from technical progress;
37

If GDP grows at an average annual rate of 9.5 percent or more, much
stronger actions and policies than currently available are required to achieve
the 20 percent reduction.
4.7
During the 1980-2000 period, China’s energy intensity declined by 4.1 percent
per year on average. This was achieved even though overall growth as relatively rapid,
in large part because the contribution of industry to growth was lower than in 2000-05.
As a result, the contributions to the reduction in energy intensity from technical
progress and structural change are considered to be 30-40 percent and 70-60 percent
respectively.
4.8
The energy efficiency target was allocated at the provincial level in view of
China’s strong administrative framework at the provincial and local levels. The central
government requested each province to propose its own target. Most provinces
proposed to follow the central government’s target of 20 percent, but four provinces
proposed higher targets and seven provinces proposed lower targets. Then NDRC then
accepted those provinces which committed to a 20 percent or higher reduction, and
negotiated for higher targets with provinces which had committed to less than 20
percent. The final commitment by each province approved by the State Council is
shown in Table 4.1
Table 4.1 Provincial Energy Intensity Reduction Targets during the 11 th 5YP Period
Region
Whole China
Beijing
Tianjin
Hebei
Shanxi
Inner
Mongolia
Liaoning
Jilin
Heilongjiang
Shanghai
Jiangsu
Zhejiang
Anhui
Fujian
Jiangxi
Shandong
Base data
2005
(tce/1000
RMB)
12.2
8.0
11.1
19.6
29.5
24.8
Target for
2010
(tce/1000
RMB)
Reduction
(%)
Region
18.3
16.5
14.6
8.8
9.2
9.0
12.1
9.4
10.6
12.8
Target
for 2010
(tce/1000
RMB)
11.0
12.1
11.2
6.6
10.4
8.1
Reduction
(%)
Henan
Hubei
Hunan
Guangdong
Guangxi
Hainan
Base data
2005
(tce/1000
RMB)
13.8
15.1
14.0
7.9
12.2
9.2
6.4
8.9
15.7
22.1
18.6
20
20
20
20
25
25
14.6
11.6
11.7
7.0
7.4
7.2
9.7
7.9
8.5
10.0
20
30
20
20
20
20
20
16
20
22
Chongqing
Sichuan
Guizhou
Yunnan
Tibet
Shaanxi
Gansu
Qinghai
Ningxia
Xinjiang
14.2
15.3
32.5
17.3
14.5
14.8
22.6
30.7
41.4
21.1
11.4
12.2
26.0
14.4
12.8
11.8
18.1
25.5
33.1
16.9
20
20
20
17
12
20
20
17
20
20
Source: China Energy Net.
Note: Unit GDP Energy Intensity is based on GDP in constant prices of 2005.
4.9
Such an allocation process has advantages and disadvantages. No feasibility
studies or cost-benefit analyses were done to guide this allocation. Thus, while the
provincial allocation may be the only practical way to get the local government
20
20
20
16
15
12
38
involved and made it accountable, this process may not be optimal from the
perspectives of equity and efficiency. This is because such an allocation does not
consider the diverse economic, industry, and energy production and consumption
conditions in the various provinces which significantly affect the energy saving
potentials and the comparative benefits and costs of achieving energy saving in the
various provinces.
Main Initiatives
4.10 The central government has rolled out a series of policies to support the
ambitious goals on energy efficiency. These include: (i) a work programming and
accountability system under which responsibilities for delivery of energy savings are
assigned to relevant agencies, top energy users, and provincial governments, with clear
accountability for execution; (ii) the Structural Adjustment Program of Industries,
which aims to impose greater discipline over the expansion of new capacity in energy
intensive industries and to phase out existing inefficient capacity quickly; (iii) the 1000
Large Industrial Enterprises Energy Conservation Action Plan, to develop and
implement specific energy conservation programs in the largest industrial energy
consumers, accounting for about 30 percent of total primary energy consumption; and
(iv) the 10 Key Energy Conservation Projects, covering major energy efficiency
technologies in manufacturing, transportation, commercial and residential buildings,
and public facilities.
(i) Institutional and Legal Initiatives
4.11 In order to strengthen the leadership over energy efficiency, the government has
set up an institutional framework all through its administrative system. At the national
level, a leading group headed by the prime minister was set up to provide the overall
guidance and leadership. A working group responsible for daily work was established at
the NDRC. At the provincial, municipal and even county level, the governor or mayor
typically heads a leading group to be responsible for implementing and achieving the
local energy intensity reduction targets. In many cases, no new full time institutes
specialized in energy efficiency were created and the actual number of staff dedicated to
energy efficiency work at the various levels has not increased much. The actual work is
done by existing officials in the NDRC or economic trade commission at the provincial
level. Clearly there is a further need to empower the existing agencies or create new
dedicated agencies and increase the number of professional staff dedicated to energy
efficiency at the various levels.
4.12 In order to support the energy efficiency policy and program implementation,
the government also took initiatives to develop the necessary legal framework. A
revised Energy Conservation Law became effective. The Renewable Energy Law
became effective on January 1, 2006 and several associated implementation regulations
and rules were promulgated thereafter. A new Energy Law was drafted and is under
discussion. A new Circular Economy Law is also being prepared.
39
(ii) Regulatory and Administrative Tools
4.13 So far, the government has largely relied on administrative and regulatory tools
to achieve the 20 percent reduction in energy intensity. The key administrative tools
include: (i) administrative orders stipulating the achievement of the target for the
provinces and key state-owned enterprises; (ii) controlling the supply of land and
capital, and tightening project approval to curb the expansion of capacity of energy
intensive industries like iron & steel, cement, aluminum, lead, paper, flat glass,
chemicals, coke; (iii) setting energy efficiency standards for new production capacity in
the above key sectors; (iv) ordering the closure of inefficient production capacity
(below certain size and belonging to a certain category) in the above sectors; (v)
encouraging mergers and acquisitions to form larger corporations so as to achieve
economic scale.
4.14 The main regulatory tools include: (i) policies guiding investment in various
sectors; (ii) decrees and instructions guiding structural adjustment in the key industrial
sectors; (iii) more stringent environmental standards; (iv) energy efficiency standards
for buildings, consumer products, and vehicles; and (v) energy consumption reporting
and auditing.
(iii) Fiscal and Financial Incentives
4.15 The central government established special funds to support energy efficiency
and emission reduction. In 2007, RMB 12 billion in fiscal support was provided for this
purpose, including RMB 7 billion in central government support for energy efficiency
activities in the 10 Key Energy Conservation Projects, particularly waste heat recovery,
optimization of the energy metering system, rehabilitation of industrial boilers and
kilns, and renovation of electric motor systems; RMB 2 billion in fiscal transfers to
support the closure of inefficient production capacities; RMB 3 billion for statistical
work in the energy area, including to monitor consumption. The funds were provided to
enterprises in the form of grants with the amounts based on the expected energy
savings.16
4.16 In addition, a state bond of RMB 5.4 billion was issued with the proceeds
provided as loans to enterprises at subsidized interest rates to support energy efficiency
and emission reduction projects. Furthermore, the PBOC encouraged domestic banks to
increase their lending for energy efficiency and emission reduction projects. 17 Also,
controls were tightened on lending to projects in the key energy intensive sectors like
steel, cement and aluminum.
16
The procedures and criteria for the allocation of the special funds were specified in the joint MOF and
NDRC document “Management Method for the Fiscal Budget for Energy Efficiency” issued in July 2007.
17
As per the PBOC document “Guiding Opinion for Improving and Strengthening Financial Services to
Energy Saving and Emission Reduction Activities” issued on June 26, 2007.
40
(iv) Price and Tax Initiatives
4.17 Energy Price: Although the government has repeatedly called for reform of
energy pricing so that the price reflects the full cost of supply, including environmental
cost, and should be determined by the balance of supply and demand, reforms in this
direction has been limited to date.
4.18 Since late 2005 price controls on coal have now been largely removed, and coal
prices are now able to freely adjust to fluctuations in supply and demand. As a result,
the industry is more profitable than ever before in its history, earning an estimated
US$8.6 billion in 2006. The spot coal prices along the coastal areas are now higher than
prices of coal imported from Australia and other Asian countries and make it more
attractive for large consumers in the coastal area to import coal. But power prices are
still constrained by government controls and are unable to respond similarly which
means that coal market efficiencies are not being transmitted across the energy sectors.
Government also retains the right to intervene in coal prices if it deems it necessary.
4.19 However, currently the coal mine enterprises are not paying the full costs of coal
production, in particular, the mitigation costs of social and environmental impacts.
Subsidence and coal wastes caused by underground mining have damaged land, surface
transport infrastructure, surface water courses and underground aquifers. A study in
Shanxi province on environmental mitigation costs suggested an average deficit of
US$5.4/t of coal mined. Coal mines also greatly under-invest in safety measures.
Average fatal accident rates in China’s coal mines are still two orders of magnitude
higher than those in Australia, though the situation is improving. Health issues even
receive less attention than safety in coal mines although substantially more workers are
affected by chronic lung disease than are killed in accidents. The resulting direct and
indirect costs of lung disease could amount to over US$ 6.5 billion per year, equivalent
to an average of US$1.5/t, which is currently paid by the state and society.
4.20 The government took some actions to include environmental costs in electricity
pricing. Electricity price for power plants with FGD facilities was increased by 1.5
fen/kwh as compared with power plants without FGD facilities to account for the
additional costs of SO2 removal. Electricity from cleaner energy source like wind,
biomass, nuclear and gas is allowed to charge much higher prices than electricity from
coal to make them attractive for investors. A few specific pricing measures were also
adopted to reduce energy consumption and promote efficiency: (i) the NDRC ordered
the termination of all preferential electricity prices offered by the local governments to
energy intensive industries, which were once used as a key incentive policies by local
government to attract investment in heavy and chemical sectors; (ii) NDRC ordered an
increase of the price of electricity for energy intensive industries which are considered
to be too small in scale and inefficient. Such discriminative price policy may have been
effective in accelerating the closure of small scale production capacities, but may not be
considered fair in an economic sense. All consumers with the same load profile should
face the same electricity price which reflects the full costs of supply, regardless the size
of the consumers.
41
4.21 But overall, the prices of key energy products are still tightly regulated by the
government, and they do generally not reflect the scarcity of energy. The government
intended to liberalize oil product price and developed a new pricing mechanism to link
domestic retail gasoline prices to the market prices of crude oil in the international
market. However, the mechanism has not been implemented yet due to rising inflation
in recent years. The prices of oil products (gasoline and diesel) were adjusted only a
few times during 2006-08, lagging by a large margin the rise in the price of oil (Figure
4.1).
4.22 As a result, retail prices of gasoline and diesel are too low to cover the costs of
crude import, refinery and distribution, resulting at times in large losses for the state-oil
companies and substantial
Figure 4.1 Oil price and domestic gasoline prices
subsidies
from
the
government
budget.
China’s gasoline and diesel
prices
are
low
in
comparison
to
other
countries, both developed
countries and developing
countries. The low prices
for
energy
accentuate
China’s
industry-heavy
pattern of growth and
prevent the rebalancing of
the pattern of growth
Source: CEIC.
desired by the government.
4.23 Both wholesale and retail prices of electricity are tightly controlled by the
government and any change is subject to approval by NDRC. Through many years of
power sector reform, the average consumer price for electricity was brought close to the
long-run marginal cost of power supply in early 2000s. However, during the past two
years, modest price adjustments lagged far behind increases in the costs of electricity
supply, including costs of fuel, labor and emission control facilities.18 As a result, the
average profit margin of the electric power sector, which was already very low with a
rate of return on net assets of around 5 percent, dropped by 65 percent in 2007.
Although electricity tariffs were raised somewhat in 2008, significantly larger
adjustments are required to restore the financial sustainability of the power sector.
4.24 Resource tax: Traditionally, China’s natural resources, including coal and oil,
were allocated to state-owned companies for development at no costs. The concept of a
resource tax was introduced with market reform, but the level of resource taxes have
been kept very low. The resource tax charged to coal and petroleum companies are also
fixed, while in most other countries it is linked to the market price of the resources. For
example, in other main coal-producing countries such as the U.S. and Australia, the
18
For instance, according to the big five generation companies, their average cost of electricity
generation increased by 27 percent alone in 2007.
42
royalty on underground coal ranges from 5 percent to 8 percent of mining revenue. In
China, it is between 2.5-3.6 RMB/ton, about 1 percent of the sales revenue at the
current coal price. Given the need to contain energy use, the resource tax on coal should
be increased. The government has announced its intention to charge a resource tax
based on revenue, and is piloting to levy environmental and sustainability fee in Shanxi
province. The scheme is yet to be fully implemented nationwide.
4.25 Consumption tax: China has not used the consumption tax as a main tool to
affect consumers’ choices on energy products. Over the past two years, the main
changes in the consumption tax relating to energy products include: (i) an increase in
the consumption tax rates for larger vehicles, which depend on the size of engines with
tax rates ranging from 3 to 20 percent; (ii) the introduction of a consumption tax on
some oil products like naphtha, lubricant and aviation kerosene, although it only ranges
between 0.1-0.2 RMB/liter.
4.26 Energy and carbon tax: The rapid increase in energy production and
consumption and the primary reliance on coal have contributed to China’s severe air
pollution. In particular, the combustion of bituminous coal is causing serious air
pollution from air-borne particulates such as sulfur dioxide (SO2) and carbon dioxide
(CO2). Currently, China’s emissions of SO2 and CO2 are respectively the highest and
second highest in the world. Many OECD countries have started to charge energy
and/or carbon tax to pass the environmental costs to energy users. While China is
starting to look at these options, it does not consider they could be implemented in the
near term.
4.27 Import and export tax: In order to adjust the industrial structure and reduce the
demand for energy, a number of initiatives were taken to discourage the export, and
encourage the import to some extent, of energy intensive products and materials.
During the past two years, export and import taxes were revised several times to: (i)
eliminate/lower tax rebate rates for energy intensive products; (ii) levy punitive taxes on
the export of some of the most energy intensive products; and (iii) reduce the import tax
and duties for some energy intensive materials.
4.28 During the past two years, the VAT rebate rate for export of steel products was
adjusted four times. 19 The VAT rebate for export was eliminated for 553 items of
energy and/or resource intensive products, and an export tax was levied on 142 items of
most energy/resource intensive products like steel and coke. Tax changes for some
selected products are shown in Table 4.2.
The main relevant document is the “Notice about the Lowering of the Tax Rebate on Some
Commodities” jointly issued by MOF and the State Tax Bureau on June 18, 2007 and effective as of July
1, 2007.
19
43
Key Results Achieved So far
(i) Overall Results
4.29 Based on government statistics, some decline in energy intensity has been
achieved during the past two years, albeit less than targeted. In 2006, energy
consumption increased by 9.3 percent and the energy intensity dropped by 1.3 percent.
In 2007, energy consumption increased by 7.8 percent and the energy intensity dropped
by 3.3 percent. Although the reduction in energy intensity is far less than the annual
average of 4.4 percent needed to achieve the 20 percent reduction target, energy
intensity reversed an upward trend experienced since 2002. Another good sign is that
the pace of energy intensity reduction seems to be increasing as the impact of policies
and measures gradually show up (Table 4.3).
Table 4.2 Tax Rate Change for Selected Products (in percent)
Items
End
Some Steel products
Coke
Iron Alloy
Cement
Paper products
Flat Glass
Aluminum
of
2005
VAT
rebate
13
Export
tax
13
13
13
13
0
End of
Import
tax
VAT
rebate
0
Export
tax
Import
tax
5
10
0
15
0
5
5
2007
0
0
5
5
5
Source: China Energy Net.
Table 4.3 Quarterly Energy Intensity Rate in 2006 and 2007
Quarter
Q1&2(%)
Year/2006(%)
Q1 (%)
Q2(%)
-0.8
1.33
1.54
2.78
Reduction Rate
Year/2007
(%)
3.27
Source: China Energy Net.
(ii) Change in Economic Structure
4.30 During the first two and a half years of the 11th 5YP, growth continued to be led
by industry (Chapter 1). Thus, the economic structure shifted further towards industry,
with the share of the less energy intensive tertiary sector not increasing, contrary to the
government’s objective (Chapter 1 and 3). According to our estimates, other things
equal, this change in economic structure increased China’s energy intensity by about
1.5 percent.
(iii) Change in Industry Structure
4.31 Within the industrial sector, several structural changes occurred with no obvious
net impact. Output of large enterprises grew faster than that of smaller enterprises. As
44
large enterprises tend to be more energy efficient, this development tended to reduce the
energy intensity. While industrial value added increased on average 13 percent during
2006 and 2007, value added of large enterprises increased by 17.5 percent. On the other
hand, heavy industry value added increased an average of 3 ½ percentage point faster
than light industry. This trend increases the energy intensity as heavy industry is more
energy intensive than light industry.
4.32 Table 4.4 shows the growth of some energy intensive industries during 2006-07
compared with the average growth rates between 2000 and 2005. There is no clear sign
that the growth rates of the most energy intensive sectors have slowed down. The
government has so far failed to curb the very fast expansion of the key energy intensive
sectors.20
Table 4.4 Growth of Key Energy Intensive Products
Name
Steel
Nonferrous
Cement
Main
Chemicals
Paper and
paper board
Flat glass
Production
Mt (2005)
Growth (%)
(2000-2005)
397
16.3
1064
140.8
24.7
15.5
13.0
11.9
56
420.3
Production
Mt (2010
Planned)
414
Production
Mt (2007)
Growth (%)
(2006)
Growth (%)
(2007)
567
23.5
1360
158.7
25.3
17.2
15.5
13.5
21.3
22.7
9.9
11.4
12.9
77.9
16
18
18.0
497.5
12.5
13
1305
Source: China Energy Net
4.33 Although the production and consumption of key energy intensive products
continued to increase rapidly, the increase in export of some of these products slowed
somewhat in 2007 and early 2008. In particular, exports of cement slowed (Table 4.5).
This may in part be a result of the government’s policy to reduce VAT rebate rates for
exports and to levy export taxes on the export of some key products.
Table 4.5 Change in (Net) Export of Key Products
(millions tons, unless otherwise indicated)
Iron and Steel
Cement
Coke
Iron Alloy
Flat Glass (mln m2)
Selected Chemicals
Paper and Paper Pulp
Source: China Energy Net.
20
2004
-15.0
7.0
15.0
-1.8
144.5
-18.5
-24.7
2005
-5.6
22.2
12.7
-1.4
199.3
-21.1
-28.2
2006
24.5
36.1
14.5
-1.7
264.3
-18.3
-28.8
2007
45.8
33.0
15.3
-2.0
309.2
-17.3
-31.4
As detailed data are not available yet, it is not possible to derive the numerical figure of the
contribution to energy intensity due to inter-sector structural change.
45
4.34 There has been progress in closing down inefficient and polluting production
capacity. As end of 2007, all the four key sectors with data available closed more
inefficient capacities than originally planned, some by large margins (Table 4.6). This
closure and their substitution by new, large, more efficient production capacities
contributes to reducing energy consumption as well as to upgrading of the production
structure.
Table 4.6 Closing Down of Inefficient Production Capacity
1000 KW
1000 t
1000 t
1000 t
During the 11th FY
Plan Period
50,000
100,000
55,000
650
2007
Planned
10,000
30,000
35,000
100
1000 t
1000 t
4,000
2,000
1,200
500
1000 t
1000 t
1000 weight
cases
1000 t
1000 t
1000 t
80,000
250,000
30,000
10,000
50,000
6,000
6,500
1,600
200
2,300
400
50
1000 t
80
20
Sector
Power
Iron
Steel
Aluminum
Electrolysis
Iron Alloy
Calcium Carbide
Stone
Coke
Cement
Glass
Paper making
Liquor
MSG
(Monosodium
Glutamate)
Citric acids
Unit
2007
Actual
21,570
46,590
37,470
570
87,000
4,000
Source: China Energy Net
(iv) Change in Energy Mix
4.35 During the last two years, with total energy consumption growing at 8 ½ percent
per year on average, the share of renewable energy actually fell, contrary to the
government’s objectives. Despite the tremendous progress made in scaling up the
development of other renewable, particularly wind energy, the overall share of
renewable energy in the mix declined slightly as the hydro share declined. Contrary to
the government target, coal’s share in the energy mix edged up by about half a
percentage point (Table 4.7). Such a minor change could not have had any measurable
impact on the overall energy intensity of the economy, but if accounted for, would only
have contributed to the increase in energy intensity.
4.36 Good progress seems to have been made in improving the energy efficiency per
unit of products in the key industrial sectors. (Table 4.8) compares the actual average
energy consumption per unit product in 2007 with the planned targets for 2010. Again
data are available for only a few sectors, but they do indicate the substantial progress
made. For example, coal consumption per unit electricity supplied dropped by 13 grams
(3.5 percent) to 357 gce/kwh, close to the 2010 target of 355 gce/kwh.
46
Table 4.7 Primary Energy Consumption (Mtce)
2005
Coal
Oil
Hydro
Gas
Nuclear
Other
Renewable
Total
2010
Planned
1784.7
553.5
183.6
143.1
24.3
10.8
2010
(%)
66.1
20.5
6.8
5.3
0.9
0.4
2006
-2010
1556
466
139
65
18
3
2005
(%)
69
21
6.2
2.9
0.8
0.1
2247
100
2700
100
4%
2006 Actual
2007 Actual
1705 (69.4 %)
499
146
80.3
19.5
1840 (69.5 %)
530.5
2456 (9.3 %)
2648 (7.8 %)
96.3
Source: China Energy Net.
Table 4. 8 Efficiency Improvement of Key Products
Steel Production (kgce/t)
Cement Production (kgce/t)
Copper Refinery (tce/t)
Allumium Production (kgce/t)
Ethylene Production (kgce/t)
Glass Production (kgce/b)
Ammonia Production (kgce/t)
Coal-fired Power Plant (gce/kwh)
2005
Domestic
Average
694
127
733
998
2006
Domestic
Average
640
120
595
803( ?)
19
19
370
366
2007
Domestic
Average
632 (-8.9%)
115 (-9.4%)
361 (-51%)
863 (-13.5%)
-1.1 % (2007)
17 (-10.5 %)
-4.1% (2007)
357 (-3.5%)
Source: China Energy net.
(v) Change in Energy Efficiency of Key Products and Sectors
4.37 Progress has been made in reducing the energy intensity of specific industries,
particularly the key energy intensive industries. Table 4.9 provides examples of a few
key industries. The energy intensity of sectors like iron and steel, construction materials
reduced by more than 10 percent in 2007 alone. The reduction in energy intensity
results from: (i) better energy efficiency and lower energy consumption per unit of
products produced; and (ii) upgrading in the mix of products towards more high quality
and high value-added products.
Table 4.9 Energy Intensity Reduction (EIR) of Key Industries in 2007
Industries
Iron and
Steel
EIR ( %)
10.1
Source: China Energy Net.
Construction
Materials
10.7
Non-ferrous
Coal
Petro Chemicals
7.2
4.8
2.9
Conclusions and Lessons
4.38 In the first two years of the 11th 5YP, the reduction in energy intensity fell short
of the target. Nevertheless, steady progress has been achieved, especially considering
that (i) the energy intensity reversed an upward trend exhibited since 2002; (ii) the
47
government’s target was formalized in mid-2006, and assigned to the provincial
governments in late 2006; (iii) most of the policy measures and incentives were
implemented in the second half of 2006 and 2007 and need time to be effective; (iv)
new policy measures and incentives are still being developed and implemented; (v) the
structure of the economy shifted more towards industry.
4.39 So far, the reduction in energy intensity seems to come mainly from
improvements in energy efficiency at the sectoral and product level by achieving higher
efficiency in specific products in key energy intensive industries. Less progress has
been made in increasing the share of higher value-added goods in specific product lines.
In addition, no progress has been made so far on the macro level, as the economic
structure shifted further towards dominance of the industrial sector, and, within the
industrial sector, the energy intensive heavy and chemical industry gained further
dominance. The lack of rebalancing the overall economy offsets in part the gains at the
micro level. The efficiency improvements gained through mandated efficiency
standards and closure of inefficient capacities would become harder to tap in the future.
Without making more fundamental changes in the economic and industrial structure, it
is unlikely that the 11th 5YP’s 20 percent reduction target in energy intensity could be
achieved. Indeed, even the 3.3 percent annual gain of 2007 will be difficult to sustain
once the easy gains through technical rehabilitation and closure of inefficient capacities
are completed
4.40 International experience has shown that reforming energy pricing and taxation is
one of the most powerful means to promote energy efficiency and saving through
technological progress and behavioral change. However, this tool remains largely
unutilized thus far in China. Notably, market based instruments such as consumption
tax, production tax and environmental tax incentives are yet to be developed and
expanded.
4.41 Instead, the government has overwhelmingly relied on administrative tools. In
view of the existence of a strong and extensive institutional system, particularly at the
provincial level, most of the administrative tools have been quite effective and produced
quick results. These are particularly useful when they are applied to large-state owned
enterprises, where the performance of senior executives is evaluated by the government.
But they are much less effective with the non state-owned enterprises and ordinary
consumers. So the choice of administrative tools should be based on the available
institutional capacity and should be supplemented by appropriate incentives.
4.42 The government has increased its financial support to energy efficiency
improvements recently through fiscal budget and state bonds. But the amount of support
provided is still small in comparison to the large financial needs. Moreover, the energy
efficiency fund is planned on an annual basis and is not known to potential applicants
until very late, making it difficult for the industries and companies to plan ahead. There
are no clear criteria and procedures on how the fund is allocated. The fund is not
managed by a professional body, but by government officials who may not have enough
knowledge of the energy efficiency business. The fund is also only accessible to a
48
limited number of large state-owned enterprises. The vast majority of medium/small
enterprises which have larger energy saving potential still face tremendous difficulties
in accessing to both government funds and state-owned banks’ financial services.
Recommendations
4.43 It is very important for China to make its best efforts to achieve the 20 percent
energy intensity reduction as committed under the 11th Five-Year-Plan periods. To do
so, it is also important to develop the technical, institutional, regulatory, and financial
framework and capacity to sustain China’s efforts to transform to an energy efficient
economic growth pattern. In order to further tap the vast energy efficiency potential
over the longer term, it is recommended to:

Gradually augment administrative tools with regulatory means and market
incentives through environmental emission standards, consumer products
labeling, and fuel and building efficiency standards. With car ownership
expanding rapidly and China continuing to urbanize rapidly in the coming
decades, energy efficiency and building standards can play a major role in
containing energy demand. When administrative means are applied, careful
cost and benefit analysis should be conducted to ensure the potential benefits
outweigh the costs;

Accelerate energy price reform so that prices reflect the full costs of supply,
including the scarcity value of energy resources and the costs of
environmental externalities; impose energy or environmental taxes when the
costs of environmental damage can not be internalized. Rational energy
pricing not only induces behavioral changes among industries and
consumers to reduce energy wastage, but also promotes innovation and
technological change over the medium to long term;

Develop a comprehensive set of fiscal and taxation policies to promote the
development and dissemination of energy efficient products, and encourage
innovation;

Increase the effectiveness and efficiency of the energy efficiency
fund/credits. These funds/credits should be accessible to all stakeholders,
private or public. The funds should be managed by a professional agency
with clear and transparent criteria and procedures for allocation, and with a
clear framework and indicators for monitoring and evaluating its
effectiveness;

Build the institutional and regulatory capacity at both the central and
provincial level to collect and analyze energy consumption data, to develop
sector/industry specific energy efficiency targets and implementation plan;
to monitor, verify, and benchmark energy efficiency data, and to evaluate
and assess the impact of energy efficiency policies and measures and
49
recommend further actions and changes; and

Develop the energy efficiency services sector to provide information to
energy users on the availability of new technologies and means to improve
efficiency, to assist in analyzing the costs and benefits of energy efficiency
investments. More information and services in the energy efficiency sector
could help reduce the energy users’ perceived investment risks.
4.44 In addition, much more needs to be done to fundamentally change the growth
pattern of China’s economy along the lines discussed in Chapters 1 and 2 if China is
going to move to a resource efficient and environmentally friendly society. Much
greater efforts are needed to rebalance growth from its current industry and capital
intensive pattern to one that is more services and labor intensive.
4.45 Over the long term, China’s energy demand will be determined by: (i) peoples’
lifestyle, including the desire to own and drive cars and the desire to own small or large
houses; (ii) energy efficiency in energy production, transformation and consumption in
all sectors of the economy; and (iii) the demand for materials such as steel, cement,
glass as well as consumer products, which are in turn determined not only by the size of
the infrastructure facilities and buildings at any particular time, but also by the
economic life of these facilities. The third factor is currently not discussed much but it
is increasingly become important in determining whether China can be a resource
efficient society. As the economic life of the infrastructure facilities such as roads and
bridges, and housing buildings is relatively short, China uses a larger accumulated
amount of inputs as roads need to be reconstructed and housing needs to be rebuilt. A
typical example is cement consumption which can not be recycled. China’s per capita
accumulated cement consumption has already exceeded that of the UK while China is
still in an early stage of industrialization and development compared with the UK. This
is in part because of the relative short life span of housing and infrastructure facilities in
China. This calls for an increase in the quality and thus the economic life of
infrastructure facilities and other products
51
5. Coordinating Urban and Rural Development
Background and Key Objectives
5.1
Prior to the 11th 5YP, China’s rapid growth was accompanied by rising ruralurban disparity. Impressive income growth and poverty reduction on the country side
lagged the even more impressive economic growth observed in urban areas. Thus, the
ratio of urban to rural income increased from 2.2 in 1990 to 3.2 in 2005, much higher
than in many other parts of the world and the highest in East Asia. Moreover, public
service delivery in rural areas lagged behind substantially, accentuating the disparities
in living standards and social indicators. Addressing this imbalance in rural and urban
development has become a major objective of the 11th 5YP.
5.2
The overall objectives of the 11th 5YP in this area are



Building the new socialist country side;
Increasing urbanization;
Preventing an increase in urban-rural inequality in incomes, living
standards, and public services.
5.3
The 5YP and ensuing policies envisage a dual approach to achieve the
objective of balanced rural and urban development. Through “sound urbanization”
the 11th 5YP seeks to accelerate the absorption of rural labor in the urban labor
markets. And through the construction of a “new socialist countryside” it seeks to
increase rural living standards directly. In pursuing this dual strategy, the 11th 5YP is
further guided by the concept of “scientific development”, implying increased
attention to the efficiency of input and resource use as opposed to increasing inputs.
As detailed in Annex 4, building up the new socialist country side is one of 15 “main
tasks and strategic priorities” of the 5YP, calling on China to:






Develop modern agriculture, by achieving higher productivity, agricultural
structural adjustment, enhancing agricultural service systems, and improve
markets;
Increase farmers’ income; by raising agricultural and non-agricultural
income and increasing net fiscal support;
Improve rural conditions; by having more infrastructure, rural
environment protection, rural health service, and rural social security;
Train new farmers; via education, skill training, and culture;
Increase agricultural and rural investment; and
Deepen rural reform.
5.4
This approach is consistent with China’s existing approach of addressing the
three rural issues (San Nong Wenti 三农)—agriculture, farmers and the countryside. In
52
agriculture this includes achieving national food security through at least 95 percent
self-sufficiency in grains, including through land consolidation and large-scale
(industrial) farming, and diversification towards higher value crops. Farmers’
incomes are directly supported following the “take less, give more” and “improved
policies” principles. 21 Rural non-agricultural income is being fostered through
programs promoting rural non-farm employment and rural-urban migration.
Measures to reduce the costs of accessing social services (education, health, and
safety nets) have been introduced in rural areas to narrow the gap in human
development. To improve rural living conditions, investment in rural infrastructure
(sanitation, electricity) has been expanded, regulations and policies on rural-urban
competition over resources such as water and land are under review, and institutional
reforms to improve governance are being deepened.
5.5
To track progress towards achieving the overarching the overall objectives,
th
the 11 5YP idenfified some anticipative and obligatory indicators and targets (Table
5.1)
Table 5.1 11th 5-Year Program Target Indicators for the Balanced Rural-Urban Development
Goals
Indicator
Promoting urbanization
Urbanization rate
Number of rural labor transferred in 5 years
(1,000)
Number of new urban jobs in 5 years (1,000)
Constructing the new socialist country side
Agriculture
Farmland retention (million ha)
Farmers
Annual net income/capita of rural residents
(RMB)
Annual disposable income/capita of urban
resident (RMB)
Coverage of new rural cooperative medical
services (%).
Rural
countryside
Type
of
indicator
Baseline
(2005)
Target
(2010)
Anticipative
43%
47%
Anticipative
45,000
Anticipative
45,000
Obligatory
122
Anticipative
3,255
120
4,150
Anticipative
10,493
13,390
Obligatory
23.5
80
Source: 11th 5-Year Plan
5.6
The evaluation of progress towards achieving the overall objective of more
balanced rural and urban development during the first half of the 11th 5YP (20062007) focuses on the evolution of the new socialist countryside and other rural
aspects, while the nature of the urbanization process will be only discussed insofar it
affects the balance of rural-urban development. Section II discusses the key measures
taken and section III address results achieved, including towards the quantitative
indicators of the 5YP. Section IV distills emerging themes and recommendations. To
The guideline to “take less” calls for rural tax and fee reform; the one to “give more” includes free
compulsory education, better medical care social security, and higher agricultural subsidies; and that
on “improved policies” relates to items including agricultural information, farmers’ associations, rural
credit cooperative reform, rural labor migration.
21
53
do so, the chapter draws on a series of interviews with informed stakeholders (central,
provincial and local government officials, farmers, think -tanks and academics),
analytical studies and background reports drawing on recent information, and World
Bank staff experience from the field.22
Measures Taken and Key Results
Measures Taken
5.7
While it is difficult to delineate the different areas of policy action precisely,
several types of measures can be distinguished: (i) government spending; (ii)
measures and policies to support the diversification and modernization of agriculture;
(iii) changes in land policy; (iv) rural subsidy and transfer programs; (v) policies to
improve (living) conditions in rural areas; and (vi) reforms in public administration to
improve rural public service delivery.
(i) Government Spending to Boost Agriculture
5.8
Central government spending on agriculture and rural areas increased
significantly, although it remained broadly constant as a share of total spending
(Table 5. 2). At a March 2008 State Council meeting, the importance of agriculture
was again emphasized with an additional RMB 25 billion granted to the rural sector
on top of the 2008 budgeted amount, largely in the form of increased
subsidies/transfers. Ten measures were launched specifically for agriculture.23 With
central government spending in the rural areas having increased substantially in
absolute terms during the 11th 5-Year Plan, there is room and need for focusing on the
efficiency of spending.
Table 5.2 Budgeted Central Government Spending on Agriculture and Rural Areas
RMB billion
Year 2005
Total central government spending
3,390
Central
government
spending
on
agriculture and rural areas
Government spending in rural areas as a
share of total government spending (%)
297.5
9
Year 2006
4,957
Planned for
Year 2008
6,079
339.7
431.8
562.6
8
9
9
4,042
Year 2007
Source: National Bureau of Statistics of China
22
In addition, to get a sense of specific experiences with the 11 5-Year Plan on the ground, a field trip
was undertaken by the team to Jishui County in Jiangxi Province in February 2008.
23
They are: (1) increase agricultural subsidies by RMB 16 billion; (2) increase grain subsidies by RMB
5 billion; (3) increase minimum procurement price for grains; (4) increase government investment in
water conservancy and agricultural infrastructure by RMB 4 billion; (5) increase spending on livestock
disease prevention by RMB 650 million; (6) utilize the RMB 4.6 billion agricultural awards to
provinces for interest and insurance subsidies; (7) waive highway tariffs for vehicles transporting fresh
produce; (8) strengthen control in agriculture related markets; (9) strengthen financial services in the
rural areas; and (10) strengthen policy implementation.
54
5.9
Spending on government programs to stimulate agriculture also increased,
with a focus on strengthening a series of existing programs in land and water
management, agricultural science and technology and extension, and marketing
(Table 5.3). After several years of decline of central government spending on
agriculture, such spending rose significantly in 2007, bringing it close to 2003 levels
in nominal terms, although this means still significantly lower spending in real terms
or as a share of GDP (Table 5.4).
Table 5.3 Government Programs Supporting Agricultural Production
Policy group
Specific policy/program
1. Agricultural production
1 Support to major grain producing areas
2 Basic farmland protection
3 Irrigation and water resource management
4 Seed improvement
5 Plant protection
6 Soil fertility improvement
1 Agricultural information
2 Agricultural product market system
2. Agricultural structural
adjustment;
market
development support, etc.
3 Rural market system development
4 Animal disease prevention
5 Key animal epidemic control
3. Agricultural science and 1 S&T service system development for agrotechnology and technical enterprises
extension
2 Sparkle prosperity S&T project
3 S&T to improve competitiveness agriculture
4 S&T for agricultural machinery grain
industry
5 Extension of agric. S&T information service
6 Agricultural S&T outreaching households
7 S&T for new socialist countryside
8 Agricultural S&T extension system reform
9 Agricultural S&T upgrading action
4. Rural land management
1 Enforced management of rural collective
land
2 Land use circulation
√ = start of program, √√ = deepening of program
20002005
√
√
√
√
√
√
√
√
2006
2007
√
√√
√√
√
√
√
√√
√√
√
√√
√√
√
√
√
√√
√√
√
√
√√
√
√
×
√
√√
√√
√
×
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√√
√
√
√
√
√
√√
√
√√
√√
Source: 11th 5-Year Plan
5.10 To bolster grain production, higher government spending on agriculture has
been accompanied by an increase in support to farmers through area based income
transfers. Since the abolishment of all agricultural taxes and levies, fiscal support to
agricultural production has become one of the most important channels used to
increase support to farmers, and there has been as shift from net taxation to net
subsidization of agriculture. Support to grain production has increased five-fold since
2004, reaching a budgeted RMB 74 billion in 2008 (Table 5.5). The largest initiative,
“direct subsidies to agricultural inputs” (almost RMB 50 billion in 2008), seeks to
compensate farmers for rising energy and fertilizer costs. Farmers receive a subsidy
from the central government based on the amount of arable land, similar to rule on the
55
“direct grain subsidies” which have replaced the former grain price support system.
As the grain support is allocated on the basis of the amount of arable land as opposed
to land cultivated with a particular commodity, these subsidy policies have been more
effective in boosting farmers’ incomes than in bolstering grain production, even
though the area sown with improved varieties has expanded and mechanized land
preparation, sowing and harvesting has increased in the first half of the 11th 5YP.
Table 5.4 Central Government Spending on Agriculture
RMB billion
Water conservancy and meteorology 1
Comprehensive
agricultural
development 2
Agricultural science and technology 3
Total
Annual change (%)
2003
19.3
3.4
2004
19
3.6
2005
10.6
2.5
2006
10.6
3.55
2007
18.1
5
1.2
23.9
1.6
24.2
1.3
1.9
15.0
-38.0
2.1
16.25
8.3
23.1
42.2
Source: China’s authorities.
1) Water conservancy and meteorology includes only spending by the NDRC, the largest source of funding. A
disaggregation of programs included can be found in Annex 6.
2) This includes spending on animal and plant disease monitoring of RMB 1.2 billion per year for many years.
3) This includes only three items for centrally funded agricultural science and technology activities (fees for
testing new products, fees for middle stage testing and support to important science and technology projects).
Table 5.5 Agricultural Subsidies
RMB billion
Direct grain subsidies
2004
11.6
2005
13.2
2006
14.2
2007
15.1
2008 budgeted
15.1
Subsidy to improved crop
varieties
Subsidy to procurement of
agricultural machinery
Direct
subsidies
for
agricultural inputs
Total
2.9
3.9
4.1
5.6
7.1
0.1
0.3
0.6
2.0
4.0
12.0
27.6
48.2
17.4
30.9
50.3
74.4
19.63
77.7
62.8
47.9
Increase (percent)
14.5
Source: China’s authorities.
(ii) Measures Towards the Diversification and Modernization of Agriculture
5.11 During the 11th FYP the emphasis in this area has been on strengthening
existing support programs for livestock production, animal health disease prevention,
and expansion of producer cooperatives (Table 5.6). Regional development around
high value products is also pursued through dragonhead enterprises and promotion of
farmers’ cooperatives. Funding for these programs has been constant around RMB 35 billion per year.
56
Table 5.6 Programs Supporting Agricultural Modernization
Policy group
1.
Agricultural
structure adjustment
Specific policy
industrial
2. Livestock and poultry disease
prevention policy
4. Agricultural subsidy policy
1 Enhancing of safety and quality of farm produce
2 Construction of farm produce industrial base
3 Farm produce processing
4 Project of “shifting mulberry from the east the
west”
1
Animal
disease
prevention
system
development
2 Important animal epidemic control action for
bird flu
1 Subsidy to improved dairy cow
2 Subsidy to production sow
5.
Specialized
farmers’
cooperatives
6. Ag. industrialization and
dragonhead enterprises
Source: 11th 5YP.
√ = start of program, √√ = deepening of program
2000-2005
2006
2007
√
√
√
√
√
√√
√
√
√√
√
√
√
√√
√√
√
√
√√
√√√
√
√
√√
√√
√
√
√
5.12 In terms of food safety, progress has been made in segments targeting export
markets, though substantial work remains ahead. Investments have been made by
local government levels and the private sector in modern processing, transportation
and distribution infrastructure. Related testing and product control has improved as
information is reaching export producers on international standards and regulations.
At the same time, many technical standards and regulations related to food safety in
China are outdated, duplicative, or inconsistent with international standards.
Coordination among the ten Government entities responsible for food safety neither
at the central government level horizontally, and at the local government levels,
vertically – is weak. As a result, different levels of government sometimes develop
their own standards. Responsibilities are unclear and the relevant institutions often
lack the technical and institutional capacity to monitor and enforce compliance.
Furthermore, as witnessed during the recent milk products scandal, monitoring and
enforcement of the existing standards is weak and the rule to exempt certain
enterprises from tests creates the wrong incentives.
5.13 The Law on Farmer Professional Cooperatives (Farmers’ Associations) was
an important step to promote “industrialization” of high value agricultural products.
With the passing of this Law, in end 2006, for the first time Farmers’ Associations
were clearly defined and were given clear registration procedures, enabling them to
operate and collaborate efficiently with other organizations. Key challenges looking
ahead include the promotion of wider familiarity with the law as well as the effective
creation of bottom-up groups at the grassroots levels.
5.14 In addition, to support agricultural “industrialization,” significant central and
local government support is going to “Dragon Head Enterprises” trying to facilitate
integration of the agricultural product supply chain.24 So far, about 500 key Dragon
24
A dragon head enterprise is a government subsidized leading, large enterprise that is meant to
57
Head Enterprises have been nominated at the national level and over 2,000 at the
provincial levels.25 Government support is given in the form of direct project funding
by various line ministries and bureaus, interest rate subsidies, and tax breaks. In the
absence of appropriate evaluation criteria and evaluation mechanism it is difficult to
make a clear judgment of the impact of the support to these enterprises. However, the
successes of the Dragonhead enterprises initiative has been mixed. A shortcoming,
especially at the provincial levels, is lack of objective qualification or selection
criterion for an enterprise to become a “Dragonhead Enterprises” and thus the
recipient of significant amounts of government grant support.
5.15 Access to finance has improved but remains challenging. The Government has
introduced a number of reforms that have increased access to finance in rural areas,
including introducing a policy to reduce market-entry thresholds for banking
institutions in the rural areas, partial interest rate liberalization, corporatization of the
rural credit cooperatives, and pilots with agricultural insurance. In addition, a number
of pilots are ongoing testing micro finance schemes and community development
funds – results of which remains to be seen. However, significant difficulties remain
for farmers to obtain adequate financial services, including medium and long term
investment financing, and proper agricultural insurance. The first rural finance report
by the PBOC issued in September 2008 includes useful concrete suggestion to
improve access to rural finance, including on simplifying procedures and providing
more cost effective products. In addition, the efforts to bring in specialized private
sector enterprises, including foreign ones, are welcome.
(iii) Adjustment in Land Policy
5.16 As emphasized in the No. 1 Central Document 2008, land tenure security is
key for the government to achieve its San Nong Wenti objectives. Land tenure
security fosters land rental markets that facilitate labor migration, increase
agricultural productivity and enhance incomes of both renters and land right owners.26
As urbanization in China progresses, rural-urban competition over land on the urban
fringe has intensified and land acquisition from farmers by local governments has
caused a lot of complaints and even protests by farmers. The debate has centered on
the issue of security of land tenure rights and the distribution of the rents derived
from the conversion of farm land into alternative uses.27
support the integration of the supply chain with other smaller enterprises, the farmers, and buyers.
25
Dong Fengxia, Jensen H. Helen, 2007.
26
Based on a national sample of land renters and tenure holders, World Bank research found that, of
the people that rented out land after that became allowed, 60 percent had relied on agriculture as their
main source of income prior to the change, whereas only 17 percent continued to do so afterwards. 55
percent migrated (up from 20 percent) and 29 percent engaged in local non-farm activities (up from 23
percent). Net revenue on rented plots increased 60 percent, with two thirds of the gains going to the
land renters and one third to the land tenure holders as rents. Net incomes for both renters and land
tenure holders increased, respectively by 25 and 45 percent (partly due to migration income) (World
Bank, 2007a).
27
Land transfer fees, estimated to account for 30-50 percent of total sub-provincial government
revenues, have traditionally been kept off-budget, which made their use non-transparent (World Bank
58
5.17 The existing laws are clear in stipulating compensation and requisition
procedures and farmers’ rights over agricultural land have been strengthened,
inducing a more efficient allocation of land. The Property Law adopted in March
2007, recently reinforced by the 2008 No. 1 Central Document, further bolsters the
legal robustness of farmers’ right over rural agricultural land. Nevertheless, farmers
cannot yet use land tenure rights as collateral to obtain credit and have unclear and
severely constricted rights over their land plots. Issuance of land certificates and land
contracts is not yet completed. 28 In addition, many of the issued contracts and
certificates have limited legal validity.29
5.18 Moreover, implementation at the local level is highly variable with very
mixed effects on farmers’ livelihoods and incomes. In practice, land readjustments
still threaten farmers’ land tenure security, exacerbated by continuing ambiguities and
legal loopholes. Recent surveys suggest that the compensation received is regularly
considered unfair by the recipient, that the requisition process is often not transparent
with information inaccessible and few mechanisms for meaningful participation or
grievances in case of problems.
(iv) Rural Subsidy and Transfer Programs
5.19 During the 11th 5YP, agricultural taxes were abolished. This was a major
breakthrough. Together with the abolishment of the two-labor contributions and other
fees, that reform is estimated to have increased farmers’ incomes per capita by up to
10 percent on average. Agricultural incomes have been further supported by the
various agricultural subsidy programs. While the total income effects of the different
support programs remain hard to gauge, these different income support measures are
mentioned by farmers time and time again as key in improving their livelihoods
during World Bank field visits.
5.20 In order to achieve its urbanization target of 47 percent in 2010, the programs
launched to promote rural surplus labor transfer have been deepened under the 11th
5YP (Table 5.7; see Annex 6 for more detail). Overall, RMB 2.6 billion was spent
between 2000 and 2007 on these different programs with the emphasis shifting from
merely transferring rural surplus labor to scaling up the transfer of better skilled
laborers, including training of the laborers. Some of the programs also aim to
improve the skills for agricultural laborers in support of agricultural modernization
and rural off-farm employment in agro-processing. A rigorous evaluation of the
effectiveness of these programs has not been completed so far.
2007b). The central government called in 2007 for including them in local government budgets.
28
A 2005 survey found that 63 percent of households had been issued a contract, a certificate or both,
mostly during the 1998-2000 period, with little issuance in recent years (Keliang, et al., 2006)
29
World Bank (2007b).
59
Table 5.7 Labor Mobility Programs Are Strengthened
Policy group
1. Labor transfer policy
2. Labor training policy
Specific policy
2.1 Sunshine program of rural labor transfer
training
2.2 Green Certificate program
2.3 Trans-century youth farmer S&T training
2.4 Support to business startup of new type
of farmers
2.5 Training for rural surplus labor for
transfer employment
2.6 Agricultural distance education
2.7 One million vocational students program
2.8 Agricultural practical technology training
2.9 S&T training of new type of farmers
20002005
√
2006
2007
√√
√√
√
√
√
√√
√√
√√
√√
√√
√√
√
√√
√√
√
√
√
√
√
√
√
√
√
√
√√
Source: 11th 5YP.
5.21 In addition, to foster coordinated rural and urban development a series of
integrated rural-urban planning pilots are being been initiated, including a large pilot
in Chongqing and Guangdong. These pilots are all still largely in the planning phase,
and it is too early to know the outcomes.
5.22 Poverty Reduction Programs have shifted emphasis. Since 2001, in order to
improve targeting efficiency, rural poverty programs have shifted from the 592
nationally designated poor counties to 150,000 poor villages under the Integrated
Village Development Program (IVDP). Emphasis has also shifted from the
traditional multi-sectoral capital investment interventions to human capital formation
and labor mobility and participatory village development planning. This shift was
supplemented under the 11th 5 year plan by increased attention to commercialization
of agriculture through the previously discussed Dragon Head Enterprises, and
discussions on the need to raise the official poverty line, consistent with the overall
increase in China’s living standards. Table 5.8 lists the various poverty reduction
programs (See Annex 5 for more detail).
Table 5.8 Targeted Poverty Reduction Projects
Specific policy
1. Priority poverty reduction counties
2. Poverty reduction with village as a unit
3. “Dew” project
4. Poverty reduction through industrial
development
5.
Training of poor youth labor for labor
mobility
6. Povertyemployment
standards
2000-2005
2006
2007
√
√
√
√√
√
√√
√
√√
√
√√
√
√*
√
Source: 11th 5YP.
* Proposed in 2007 but yet to be implemented.
5.23 Overall budgetary funding for poverty reduction programs increased over the
past couple of years, even as funding through treasury bonds and subsidized loans is
60
decreasing. Funding for these programs comes from multiple sources with the MOF
providing budgetary grants for public investments, training and resettlement; NDRC
funding infrastructure projects through the “food for work” program; and subsidized
loans to enterprises and households (previously through Agricultural Bank of China,
now mainly through Rural Credit Cooperatives). The latter make up about 50 percent
of the total spending on poor area development programs (see Table 5.9)
Table 5.9 Central Government Funding for Poverty Reduction
MOF Budgetary
funds
“Food for work”*
+ budgetary funds
Total
18.5
NDRC “Food for
work”
(of which T-bonds)
6.0 (2.0)
5
9.0
29.5
2002
18.5
6.0 (2.0)
5.6
9.6
30.1
2003
18.5
6.5 (2.5)
6.4
10.4
31.4
2004
18.5
6.4 (2.4)
8.2
12.2
33.1
2005
7**
6.8 (2.8)
9
13
2006
6.9
4.6(0.6)
9.7
13.7
21.2
2007
12.4
4.5(0.5)
10.4
14.4
27.3
RMB
Billion
Year
2001
Subsidized
loans
Source: Report On China's National Economic And Social Development (2002-2008), NDRC
* Excluding treasury-bonds. ** Through the first 3 quarters.
5.24 So far, about 50 percent of the 150,000 IVDP villages have benefited from the
program. The targeting needs to be further improved because the poor are
increasingly more heterogeneous and dispersed throughout villages of rural China,
and the poverty is changing its nature (being poor because of personal
characteristics—i.e., being disabled, uneducated)—as opposed to where people live.
The introduction in 2004 of the rural minimum living standard allowance system
(dibao) and its nationwide expansion in 2007 is an important step in addressing this
issue together with the social insurance programs in the “five-guarantee provisions”
for the rural areas.30
5.25 China’s government is now considering a proposal from the State Council
Leading Group of Poverty Alleviation to increase the current national poverty line in
line with the previous international poverty line of real purchasing power of US $1
dollar per day. This would for the first time align the Chinese poverty line with the
international standard, and the number of people considered absolute poor people in
China would be doubled to about 80 million, the bulk of them in rural areas.
(v) Policies to Improve (living) Conditions in Rural Areas (including quality of life)
5.26 The “third rural issue”— rural areas — has called for attention to living
conditions and quality of life of the rural households. The central government’s
support to rural infrastructure and services has increased substantially in recent years,
30
Other important social insurance programs included in the five guarantee provision system are the
rural cooperative medical insurance scheme and the minimum living standard allowance (dibao).
61
bringing significant improvements. This is so even as significant regional and urbanrural disparities in access to public services remain, reflecting large income
disparaties, further accentuated by fiscal disparities across localities under
decentralized finance.
5.27 The Government supported infrastructure investments have clearly improved
the quality of life of the rural residents. Close to 50 percent rural households in China
now have access to piped water, and only about 20 percent of rural households have
problems with obtaining safe drinking water.31 In 2007, an additional 31 million rural
people were provided safe drinking water. Rural roads construction has focused on
access to townships and villages and an additional 120,000 km of rural roads were
built or upgraded in 2007. The ongoing expansion of biogas to rural households is in
particular beneficial to women. They save time from fuel-wood gathering for
cooking, and benefit from the reduced indoor air pollution in the kitchens. The
number of households with biogas was estimated at about 18 million at the end of
2005. During the 11th 5YP, the government intends to increase the number of rural
households with biogas to 40 million. While a modest number compared with the
overall number of rural households, this represents an estimated 30 percent of
households that meet the technical criteria for being able to make use of biogas.32
5.28 Government funded programs in provision of cultural services have also
increased. They include support for cultural centers (including libraries) and cultural
activities (e.g. “one movie per month per village,” performances, sports activities,
etc.) and campaigns that aim to improve the “quality” of the farmers in terms of living
habits and behavior. Radio coverage now reaches over 95 percent and television
coverage over 96 percent of the country’s population.
5.29 The 11th 5YP continued with the direct investment programs from the 10th 5Year Plan focusing on: (i) subsidies for afforestation and terracing for ecological
purposes (returning cultivated slope land above 25 degrees to trees or grassland; (ii)
provision of safe drinking water; (iii) construction of rural roads; (iv) extending
electricity to villages; and (v) subsidies for biogas digesters to households for cooking
purposes, etc. (See Annex 5 for a compilation of the major NDRC investment
programs in the rural areas). While investments in improving rural living conditions
rose only modestly during 2006-07, they were nonetheless effective in improving the
quality of rural people’s life as demonstrated above (Table 5.10).
5.30 The government is pursuing administrative reform to support improvements in
the quality of public services in rural areas. While budgetary allocations determine
the quantity of public services provided to the rural areas, the efficiency of the
various government offices at the local levels determine the quality of those services.
A number of initiatives are under way trying to improve the quality and/or efficiency.
Administrative reforms have taken place to reduce the number of public servants in
According World Health Organization statistics, about 80 percent of China’s rural population have
access to safe drinking water compared with 67 percent of other rural regions in East Asia.
32
About 0.7 percent of China’s rural households utilize biogas as the main cooking fuel.
31
62
the countryside. The number of villages and townships has been reduced. Lower
level administration has been streamlined by putting townships under county
administration. The introduction of the single treasury account system for flow of
funds has been a major improvement in the efficiency and transparency of funds
transfers to the rural areas. Pilots are ongoing on participatory village level budgeting
as well as integration of public funds.
Table 5.10 NDRC Investments in Rural Infrastructure
RMB Billion
2003
2004
2005
2006
2007
91
70
101
59
77
184
176
149
204
219
28
18
20
60
64
Rural road construction and electrification
66
72
51
62
73
Subsidies to household based
development
Integrated poverty reduction activities
10
10
10
25
25
80
76
68
57
57
Forest and Ecological Protection
Improving Production and Living Conditions in
Rural Areas
Provision of safe drinking water
biogas
Source: Data compiled from unpublished NDRC departmental sources.
(vi) Reforms in public administration
5.31 In addition, a number of governance related reforms have been introduced to
improve transparency of government institutions, the most recent one being the
“Rules on Openness of Government Information ”stipulating that all administrative
public organizations have to make certain categories of information available to the
public in an accessible manner. 33
5.32 A key remaining issue is low institutional and human resource capacity,
especially in the more remote areas. In addition, the increase in central government
funding is putting tremendous stress on local capacity to implement the various
programs adequately. This is exacerbated by lack of accountability and lack of
institutional incentives for effective use of resources.
Results
5.33 This section assesses the results of the measures taken so far in meeting the
quantitative indicators, with a focus on agricultural production, rural incomes, and
rural-urban inequality.
33
Passed by the 165th standing meeting of the State Council and coming to effect on May 1, 2008,
which called for improvement of availability of (1) information which concerns the vital interest of
citizens, legal persons and other organizations; (2) information that needs to be know by the public; (3)
information regarding the functions and procedures of a public entity; and (4) other information
required by law to be made public.
63
5.34 Main Achievements. Based on our assessment, it seems that the hard targets
relevant to coordinating rural-urban development in the 11th 5-Year Plan are likely to
be met. The main achievements per each target indicator under the 11th 5YP are
summarized in Table 5.11.
Table 5.11 Achievements as of 2007 of the Major Relevant Target Indicators
Indicator
Per capita rural net income (RMB)
Urbanization rate (%)
Farmland retention (mln ha)
Coverage of new rural
cooperative medical services (%)
Transfer of rural laborers
– rural migrant workers (mln people)
Baseline (2005)
Target (2010)
3,255
43
122
23.5
4,150
47
120
> 80
Current
Achievement
4,140 (2007)
44.9 (end 2006)
121.7 (end 2006)
87.5 (2007)
131 (end 2006)
Source: China’s authorities.
Agricultural Production
5.35 A key objective of the 11th 5YP is to enable a stable and sufficient supply of
grains ensuring 95 percent internal food self sufficiency. This translates into a target
of 500 million tons grain output by 2010 and a target to retain no less than 120
million hectare as farmland. National cereal output is now back at the levels reached
during the late 1990s (Figure 5.1) and the overall target of 500 million ton grains set
for 2010 has already been achieved.34 At the end of 2006, 121.7 million ha of arable
land was available.
5.36 Grain output targets were reached through grain area expansion and, to a
lesser extent, through increased yields. The cereal land area expanded by 4.8 percent
per year between 2004 and 2007, while yields grew 2.7 percent per year. Since 2004,
yield improvement has decelerated again, turning negative in 2007 (Figure 5.2).
Given strong competition over arable land from urbanization, industrialization and
the rush to develop economic zones, the scope for land expansion is limited and
further grain output expansion will have to come from increases in yields. Moreover,
the quality of reclaimed land is often of inferior quality, further underscoring the need
for a focus on increasing yields to secure the food supply.
5.37 The structure of the agricultural sector appears to have changed little. Little
change is observed in the share of higher value outputs in overall agricultural GDP
(Figure 5.3). There is a slight decline in the share of crops (grains, oils, cotton, sugar
crops, fruit, vegetables) and a slight increase in the share of animal husbandry, with
fishing and forestry largely constant. The 2007 increase in animal husbandry largely
followed the 31 percent jump in livestock product prices which more than
compensated for the 16 percent decline in livestock product production following the
large increase in pork prices.
34
Grains include cereals (85 and 90 percent of total grain production), beans and tubers.
64
Figure 5.1 Grain Production has risen to levels of
the late 1990s with a slowdown since 2004
500
480
mn to n
Cereal pro ductio n (maize,
rice, wheat)
A nnual gro wth (RHS)
percent
460
440
Figure 5.2 Changes in cereal Land Allocation have
dominated the decline (before 2004) and the
increase (after 2004) in cereal production
15
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
-15
A nnual
gro wth
(percent)
420
400
380
360
A rea gro wth
340
Yield gro wth
320
Output gro wth
300
1990 1992 1994 1996 1998 2000 2002 2004 2006
2000
Source: National Bureau of Statistics
Increase in rural income and
prevent an increase in ruralurban inequality
2001
2002
2003
2004
2005
Source: National Bureau of Statistics
Figure 5.3 Sub-Sector Share of Agriculture
70
60
P ercent
Farming
Fo restry
A nimal husbandry
Fishing
5.38 Rural per capita income
50
is already reaching the 2010
target. The 11th 5YP has set
40
itself two explicit income
30
related targets to assess the
20
evolution of living standards in
rural and urban areas.
Per
10
capita rural income growth
0
accelerated to 9.5 percent in
2001
2002
2003
2004
2005
2006
2007
2007 in real term, reaching
Source: National Bureau of Statistics
RMB 4,140 in nominal terms,
only a whisk away from the anticipated 2010 target of RMB 4,150, although this is
much lower than the average urban per capita income (Figures 5.4 and 5.5).
2006
65
Figure 5.4
Rural income per capita growth
accelerated further since 2005
6,000
P ercent
RM B
12
A nnual per capita net inco me
5,000
10
Real gro wth (RHS)
8
3,000
6
2,000
4
1,000
2
0
0
2002
2003
2004
2005
Source: National Bureau of Statistics
16,000
RM B
A nnual per capita net
inco me
14,000
2006
2007
P ercent
12
10,000
10
8,000
8
6,000
6
4,000
4
2,000
2
0
0
2001
2002
2003
2004
2005
2006
2007
Source: National Bureau of Statistics
5.39 The rapid increase in Figure 5.6 Growth in agricultural GDP, agricultural
rural incomes during 2005-2007 prices, and agricultural output
has been mainly fueled by 3 key
30
Gro wth
A griculture no minal GDP
factors. First, the terms of trade
(percent
A griculture real o utput
25
yo y)
increased significantly, because
A griculture price
of higher agricultural output
20
prices. Real agricultural GDP
15
growth was a modest 5 percent
10
in 2006 and 3.7 percent in 2007.
5
However, rapid increases in
0
agricultural output prices have
been an important driver of
-5
farmers’ income growth in 2007
-10
(Figure 5.6), particularly since
2001 2002 2003 2004 2005 2006 2007
agricultural input prices lagged
Source: National Bureau of Statistics
output prices (Figure 5.7). 35
Second, lower taxation and higher subsidies and transfers. As mentioned, this is
perceived as one of the key factors boosting income growth. Third, wages from off
farm employment have risen rapidly—with steady urbanization as an important
factor. China is well on track to reach urbanization and urban job generation targets.
With an annual growth of 1 percentage point, China continued its urbanization trend,
started in the mid 1990s (Figure 5.8). Urbanization will only need to continue at 0.7
percentage points per year to reach the 47 percent target for 2010. Having generated
11.9 million urban jobs per year since 2005, the country is also well on track to reach
its goal of 45 million new urban jobs by year 2010.
35
16
14
Real gro wth (RHS)
12,000
4,000
2001
Figure 5.5 Urban income per capita growth was
consistently higher, widening the gap
An 18.5 percent increase in agricultural prices in 2007 resulted in an overall expansion of
agricultural GDP in 2007 of 16.9 percent.
66
Figure 5.7 Growth of agricultural input and
output prices
20
Gro wth
(percent
yo y)
Figure 5.8 Urbanization
50
P ercent
Output price
Iutput price
15
45
40
10
35
5
30
0
25
-5
20
2000
2001
2002
2003
2004
Source: National Bureau of Statistics
2005
2006
2007
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: National Bureau of Statistics
5.40 At the same time, the
Figure 5.9 The Rural-Urban Income Gap
rural-urban
income
gap
3.5
Ratio
continued to increase.
No
3.4
explicit targets have been set to
3.3
assess the balance of rural3.2
urban development. However,
3.1
the quantitative targets for per
3.0
capita income in rural and urban
2.9
areas imply a target of an
2.8
unchanged income ratio. While
Ratio urban/rural inco me
2.7
rural
income
growth
2.6
accelerated, real urban income
2.5
growth accelerated even further
2001
2002
2003
2004
2005
2006
2007
to 12.2 percent in 2007 with
Source: National Bureau of Statistics
urban income exceeding its
2010 target of RMB 13,390 per
capita on average. Thus, the acceleration in rural income growth was insufficient to
keep up with urban income growth and the urban to rural per capita income ratio
increased from 3.2 in 2005 to 3.3 in 2007 (Figure 5.9). Household income alone does
not fully capture the evolution of living standards, and rural access to education,
health, and social protection has increased substantially (see Chapter 6). While a
thorough analysis is not possible yet, given data constraints, it is possible that the
disparity in overall living standards has developed more favorably.
5.41 Access to social services in urban areas for rural migrants could be further
facilitated to foster off-farm employment generation and successful integration. Even
though the hukou system has been relaxed to allow mobility, migrants continue to
face difficulties in accessing social services in urban areas, mainly education for their
children and health care. By law, rural migrant worker’s children are allowed to
attend schools in urban areas where their parents work. Some cities actively facilitate
67
the school enrollment of the children (e.g. Guangzhou, Chongqing). Other cities (e.g.
Beijing), require that the parent’s present five different documents before enrolling
the child in school. 36 In effect, these requirements exclude the children of most
migrant workers from the regular Beijing public schools, forcing them to enroll their
children into unlicensed schools that are set up for this group of children in the
outskirts of Beijing - usually of inferior quality.
Table 5.12 Budgeted Central Government Spending on Agriculture and Rural Areas
RMB billion
Total Central Government Spending
overall
Total Central Government Spending on
agriculture and rural areas
Government spending in rural areas as a
percentage of total government spending.
Year 2005
3,390
Year 2006
4,042
Year 2007
4,956.50
Planned for
Year 2008
6,078.60
297.5
339.7
431.8
562.6
9%
8%
9%
9%
Source: National Bureau of Statistics of China
5.42 The large increase in the domestic terms of trade for agriculture cannot be
expected to continue. These developments suggest that under the current, still
imbalanced, pattern of growth it is difficult to decisively halt urban-rural income
disparity. The domestic terms of trade may well stay in favor of the rural areas for
some time to come, given the expected structural shift in international demand for
agricultural goods and food prices following the emergence of bio-fuels. However,
future rural income gains will have to come from increases in both off-farm incomes
and agricultural productivity growth, whose contribution to the current rural income
growth increase has been more modest. The rapid increase in urban-rural income
transfers, akin to OECD type agricultural policies, may not be desirable from an
efficiency point or fiscally sustainable over time.
Emerging Themes and Recommendations
5.43 Factors that are helping the Government to meet the targets include: (i)
committed government policies; (ii) increased financial resources, both in terms of
investments and transfers (although more in some areas than in others); and (iii)
higher agricultural product prices that have helped boosting farmers’ income. In
particular, five newly introduced programs are highlighted time and time again, also
by farmers themselves, as important contributors to the increase in rural incomes and
living standards: (i) the abolishment of agricultural taxes and fees in 2006; (ii) higher
direct agricultural subsidies;37 (iii) the introduction of free compulsory education in
36
These are the original hukou, a certificate from the home county that no parent is left in the village
enabling the child to enroll at school there; temporary urban household registration; work registration;
and certificate from the urban school district designating which school the child belongs to.
37
Direct agricultural subsidies in 2007 made up about an average of 1.3 percent of farmers’ income
that year.
68
the countryside; (iv) the introduction of rural cooperative medical insurance schemes;
and (v) the extension of the minimum living standard allowance (“dibao”).
5.44 Although the 11th 5YP’s hard targets will likely be met, more progress is
needed on achieving more balanced development between the urban and rural areas
so as to provide more equitable outcomes from China’s rapid economic growth.
Conditions are improving in the countryside, but they are improving even faster in the
urban areas. As a result, urban-rural disparity in incomes and living standards is still
increasing.
5.45 A significant factor inhibiting the Government to meet the intrinsic objective
of more balanced development is the capital-intensive industry-led overall pattern of
growth. This has lead to slower urban job creation, and therefore to slower movement
of labor out of agriculture, where productivity and incomes are significantly lower
than in urban areas (Chapter 1). This, in turn has dampened poverty reduction.
5.46 Looking ahead, a dual approach is necessary to sustainably contain the ruralurban income gap and reduce political pressures for economically inefficient income
support. Such a dual approach fosters both reallocation of labor from rural to urban
areas, and increases rural labor productivity, both on and off the farm. Such a dual
approach is necessary because, while more labor intensive urban growth would help,
the absorption of rural labor in the urban labor force may in itself not be fast enough
to effectively close the rural-urban income gap. Moreover, it could lead to
urbanization of poverty and the onset of diseconomies of agglomeration. On the
other hand, there are limits to the increases in urban-rural income transfers that can be
sustained. This suggests the need for more, but also more efficient public spending
on rural public goods – both the “hardware” and the “software.” Specifically, there is
a need to invest more in agricultural science and technology; extend more support to
environmentally sustainable techniques for staple crop production; and foster
agricultural diversification to higher value products
5.47 The efficiency of the various rural programs and investments also deserves
further attention. A rigorous assessment of the efficiency of the various programs and
investment is important to inform policy making. However, the quality of the data to
track inputs and link inputs to output remains weak, rendering it difficult to properly
assess progress and evaluate the effect of the Program. All entities interviewed for
this assessment noted that they did not have adequate management information
systems or monitoring frameworks that would enable systematic tracking of policies,
programs, and investments at the various government levels.
5.48 Our key recommendations are thus related to improving the effectiveness of
the Government's investments in the rural areas, improving the provision and delivery
of public services, and improving the enabling environment for agricultural
modernization.
69
(i) Improve the Effectiveness of Rural Public Investments
5.49 Effectiveness of rural public investments can be improved by strengthening
the implementation arrangements along different dimensions:

Coordination and consolidation. Improve coordination among investment
programs and consolidate programs to avoid duplication and inefficiencies
and reduce the administrative burden of the large number of programs on
local governments.

“Software.” Increase the attention for strengthening of institutional,
human and resource capacity. When developing investment programs,
focus equally on “hardware” and “software.”

Encourage Farmers Participation. Participation by communities in the
design, delivery, and monitoring of public programs and services increases
their effectiveness.

Performance Based Funding. Allow more flexibility at local levels by
reducing the earmarking of funds. More performance-based program
funding for certain minimum outcome targets could be provided instead.
Improve accountability through proper Monitoring and Evaluation (M&E)
and enforcement of agreements.
5.50 The 12th Five Year Plan could usefully include more clearly defined outcome
targets and use an M&E system allowing assessing progress towards these targets and
the effectiveness of the different programs and investments in contributing to these
targets. In developing and implementing an M&E system the focus should be more
systematically on outcomes and impacts, and less on inputs per se. Without proper
statement of sub-objectives, and without properly defined outcome and impact
indicators and follow up monitoring and evaluation, the risk of sub-optimal use of
funds is high.
5.51 Tracking of progress on targets could be improved by establishing
standardized management Information Systems (MISs) for clusters of investments.
They have to be able to capture information from all levels of government and share
information at all levels of governments, horizontally and vertically. Currently, input
information is compartmentalized at each government unit and level. It is impossible
to access comprehensive and accurate information either horizontally or vertically for
the same sub-sector. For example, to get a full picture of investments going into
biogas, one would have to access information separately (horizontally) from NDRC,
MOA, Leading Group for Poverty Reduction and others, and then separately
(vertically) from each level (province, prefecture, county) of each ministry. For
example, NDRC does not have access to investment information from lower levels of
government. It is likely that the efficiency of the various development programs
could be significantly enhanced through more refined targeting, better monitoring,
70
and introduction of impact evaluation.
(ii) Improve the Provision and Delivery of Rural Public Services
5.52 Rural public services can be improved by strengthening the accountability
relationships among the key stakeholders including: (i) clarifying and specifying
responsibilities for each level of government and for service providers; (ii) ensuring
adequate financing (match responsibilities with finance), but also adjusting the fiscal
system to improve the quality and efficiency of the public services provided by local
governments; (iii) building a robust information reporting and evaluation system, and
(iv) creating mechanisms for effectively enforcing responsibilities.
(iii) Focus on an Enabling Environment for Agricultural Modernization
5.53 Agricultural modernization in China will depend on the government’s ability
to develop an enabling environment that promotes agricultural modernization. This
includes: (i) deepening and speeding up land related reforms; (ii) improving the
agricultural sector’s “software” infrastructure; (iii) promoting innovative
“industrialized” agriculture; (iv) improving systems for food safety and quality; and
(v) broadening and improving agricultural producers’ access to adequate financial
services.
38

Land Issues. The challenge is to find better tools that limit hardships
experienced by affected individuals and communities, while enhancing the
efficiency of necessary public land acquisition for development objectives.
Better implementation of the existing laws and regulations requires
independent and comprehensive monitoring of the local progress, large
awareness campaigns of farmers’ rights, strong linkage to local
government officials’ performance evaluation, reasonably independent
judicial systems along with legal-aid services for farmers. A number of
concrete steps could be taken to strategically strengthen and expand land
tenure rights, some of which are already being tested in pilot settings.38

Agricultural Science and Technology. More government funding should
be allocated to “software”, including agricultural research and
These include 1) making collective construction land marketable and allowing land tenure holders to
sell directly to new users in the case of land conversions for “non-public interest” uses—pilot
experiments in regulatory reform for collective construction land have been conducted in a number of
provinces with some promising results; 2) strengthening efforts to protect rural land users from
improper actions by collective leadership, both in the context of government land requisitions and in
the implementation of the Rural Land Contracting Law; 3) introducing the right to mortgage farm land;
4) developing an effective registration system for all land rights, including rural land; 5) resolving
ambiguities concerning the nature of collective ownership, including narrow the scope of land
expropriation by clarifying the definition of “public interest” in the Land Takings Law; 6) defining
farmers’ housing plot rights as perpetual usufruct rights and expanding their transferability; and 7)
strengthening legal literacy of farmers and officials.
71
development and its extension, and improved quality of training to
farmers. The existing agricultural extension system must urgently be
revamped by: (i) ensuring continuous upgrading of the extension workers
skills, including training in adult training methodologies and funding an
adequate operational budget; and (ii) better promoting and providing
agricultural extension non-government providers.

Farmers Cooperatives. In order to support a healthy development of
farmers’ cooperatives, the government should focus on creating an
enabling environment which includes: (i) strengthening farmers and local
officials knowledge of the new law through awareness raising, information
dissemination, and training; and (ii) Promoting access to financing by the
cooperatives instead of providing subsidies which encourage the
development of an unhealthy structure of the cooperatives.

Food Safety. Improvements in food safety and quality improve the
nation’s agricultural competitiveness and benefits small farmers and larger
farms. The government’s efforts in food safety and food quality can
become more cost-effective by streamlining and clarifying responsibilities
of the involved public sector agencies. In addition, as underscored by the
milk products scandal, the government should focus on developing a
proper framework for private sector incentives and focus on ensuring
compliance with regulations.

Rural Financial Services: Speed up reforms. Encourage development of
new financial products including medium and long term financing allow
land user rights to be mortgaged, agricultural insurance.
72
6.
Improving Basic Public Services
This chapter evaluates the implementation of the 11th 5YP in the areas of social
protection, education, and health.
A. Social Protection
Background and Key Objectives
6.1
The 11th 5YP proposes an ambitious set of priorities in the area of social
protection. It recognizes that although significant achievements were made during the
10th Five Year Plan period in raising living standards, a number of challenges persist in
terms of inequality between rural and urban areas, employment pressures, and the
continued vulnerability of certain segments of the population, including the large number
of rural-to-urban migrants. The 11th 5YP therefore covers a wide range of measures
related to social protection, encompassing improvements in urban and rural social
security as well as employment expansion and support for migrant workers.39
6.2
In the area of social insurance, the 5YP calls for the development of a social
security system that is compatible with China’s level of development; is multi-layered,
and has broad coverage. It calls for increased funding from the fiscal system and from
multiple channels. In particular, the 5YP expected numerous improvements to the urban
pension system, including expanded coverage, gradual funding of individual accounts,
and higher level of pooling or strengthened provincial level fund equalization. It calls for
reform of the pension system for civil servants and employees of public institutions, and
for development of supplementary pensions by enterprises where conditions allow. It
supports exploration for options of rural pension systems that are consistent with the rural
economic situation and are compatible with other social protection mechanisms. The Plan
also expects improvement to the unemployment insurance (UI) system, including the
establishment of linkages between UI and employment promotion, as well as to work
injury and health insurance programs. The Plan recognizes the importance of providing
social security for rural-to-urban migrants, standardizing the contributions to and
supervision of social insurance funds, and strengthening social insurance administration.
6.3
In the area of social assistance, the 5YP seeks to improve both urban and rural
programs. The Plan calls for improvements in the urban dibao program, including an
increase in the dibao benefit level. It requires the establishment of urban and rural
medical assistance systems that cover recipients of the main social assistance programs
(e.g. beneficiaries of urban dibao, rural tekun, and rural wubao programs). As part of the
rural development strategy, the 5YP calls for the establishment of the rural minimum
39
These measures are described in detail in Chapter 6 (Improve Rural Appearance), Chapter 21 (Promote
Healthy Urbanization Process), and Chapter 39 (Improve the People’s Living Standard) of the 11 th 5YP.
73
living allowance (dibao) program where local conditions permit, and for the
improvements to the wubao, tekun, and disaster relief programs. In addition, it states that
city governments will provide assistance to urban homeless (especially the under-aged
among them), and farmers who lost their land due to land requisition for urban
construction.
6.4
In the area of labor market development, the Program lays out numerous
measures aimed at expanding employment. Developing the services sector is recognized
as key to increasing employment and domestic demand. Implementation of an “active
employment policy,’ which includes policies to increase training and employment
services, is identified as a priority. The Program includes implementation of the labor
contract system, strengthening of the dispute resolution system, and protection of worker
rights and interests. The Program highlights the safeguarding of migrant worker rights
and interests and their integration into urban areas as particular priorities. In addition, the
Program calls for implementation of the minimum wage policy and a gradual increase of
the minimum wage level.
6.5
Indicators for social protection objectives are provided in the overall 5YP as well
as the 5YPs of the Ministry of Labor and Social Security (MOLSS) and Ministry of Civil
Affairs (MCA)40. The overall 5YP provides one social protection-related indicator on the
expansion of basic old age insurance in urban areas. The Ministry-specific programs
provide additional indicators for social insurance and social assistance. The indicators
and targets are:
40

Increase coverage of basic old age insurance among urban residents from 174
million participants in 2005 to 223 million in 2010;

Raise the number of unemployment insurance participants from 106 million in
2005 to 120 million in 2010;

Increase the number of work injury insurance participants from 85 million in
2005 to 140 million in 2010;

Increase the number of maternity insurance participants from 54 million in
2005 to 80 million in 2010;

Increase the ratio of rural wubao beneficiaries who receive centralized care
(i.e. in welfare homes) by 5 percent each year;

Provide 14.84 beds in rest homes for every 1,000 elderly people; and

In each city, have at least one children’s welfare home as well as an assistance
and protection center for homeless children.
The Ministry of Health program also specified some targets on the coverage of the new rural cooperative
medical scheme.
74
Overall Progress, Main Initiatives, and Key Results41
6.6
In the first half of the 11th 5YP implementation period, China made significant
progress toward its social protection objectives. It is on track to achieving its targets and
is close to meeting targets ahead of schedule in some cases (Table 6.1). In selected areas
(e.g. rural dibao), with the decision to scale up the program nationwide, the Government
has moved beyond what is envisaged in the 5YP.
Table 6.1 Social Protection - 11th 5YP Targets and Progress at Mid-Term
Indicator
2005
2007
Target
Basic old age insurance – contributors (millions)
175
201
223
Percent
Completed
(%)
54
Unemployment insurance – contributors (millions)
106
116
120
71
Work injury insurance – contributors (millions)
85
122
140
54.5
Maternity insurance – contributors (millions)
54
77
80
88.4
Rural wubao – ratio of beneficiaries receiving centralized
care (%)
19.842
23.6
50
12
Beds in rest homes per 1000 elderly people
9
n.a.
14.84
n.a.
Cities with at least one children’s welfare home and
assistance and protection center for homeless children
n.a.
n.a.
All
cities
n.a.
Source: MOLSS ; http://www.molss.gov.cn
Note: Indicators and targets are from the overall 11th Five Year Program and Ministry-specific Five Year Program from
the MOLSS and MOCA.
6.7
Across the various social protection-related areas, the Government has enacted
legislation to lay the groundwork for reforms and adopted regulations aimed at improving
program implementation and management. The Government has also introduced pilot
programs to test new approaches and help inform the development of strategies for
broader implementation. The main initiatives undertaken in the past three years are
summarized below, with information on key results and progress in meeting numerical
targets where available.
(i) Social Insurance
6.8
China has a relatively developed social insurance system among countries of
similar levels of development. However, the system was developed partly in the era of
the planned economy and has been heavily burdened by the legacy cost. Its design is also
not entirely compatible with the modern market environment where labor market
41
Major social protection policies introduced in the first half of the 11th 5YP period are listed in Annex 6.
Only the number of wubao beneficiaries receiving centralized care can be obtained. The ratio is
calculated based on data concerning wubao beneficiaries from speech of MOCA officials.
42
75
competitiveness and mobility are important features. As China urbanizes, how to develop
integrated social insurance systems that cover urban and rural population is another major
challenge.
6.9
During the first phase of the 11th 5YP period, the government continued to
experiment and reform the key social insurance programs, with the emphasis on
expanding program coverage. Progress was made in coverage expansion, unification of
policy parameters, and the decision to increase the pooling level. There has also been
heightened attention paid to the management of social insurance funds. A Social
Insurance Law is being drafted and is expected to be reviewed in 2009. To ensure that the
system can indeed provide effective protection while being conducive for labor market
development, it is important to recognize that the social security reforms introduced in
the mid 1990s are still very incomplete. The government needs to rethink the overall
structure of the system and take a more integrated approach to ensure that the needs of
urban and rural populations are addressed in a labor market-efficient and financially
sustainable manner.
6.10
Old Age Pensions. Extending pilots conducted in Liaoning, Heilongjiang, and
Jilin provinces, the Government made changes to the urban enterprise pension system in
line with the objectives of the 11th 5YP. The State Council introduced in December 2005
(Document #38) policy changes for more gradual funding of individual accounts, closer
linkages between pension benefits and length of contribution, and the formula used to
calculate individual account pensions. Document 38 also expanded coverage for the selfemployed and informal workers, who can enjoy the same benefit level as enterprise
employees but with a lower level of contributions at only 20 percent of the local average
wage. Annex 6 provides a summary of major changes from the previous policy.
6.11
The Government has also issued regulations to increase higher level pooling of
pension funds and to unify key policy parameters. In March 2008, the government
announced the plan to achieve provincial level pooling of pensions by the end of 2009.
Recognizing the fact that limited portability of pension benefits has led to withdrawal of
participation, the government is paying special attention to benefit transferability. It is
anticipated that a regulation will be issued in 2008 that stipulates specific measures to
ensure the portability of pension benefits when moving across provinces. Meanwhile, the
government is moving further toward a pension system that is unified in terms of
contribution base, contribution rates, parameters to establish pension benefit, as well as
pension fund administration.
6.12
There have been debates concerning the design, size, and management of
individual account pensions. Experiences of the northeast pilots also provided some
observations. Up to March 2008, the Government has expanded pilots for funding of
individual accounts to 14 provinces. The share of payroll that goes into individual
accounts has been reduced substantially from originally envisaged, indicating a much
more gradual funding strategy. 43 A more flexible “dynamic funding” approach was
43
The size of individual account has reduced from 11 percent envisaged in the 1997 reform to 8 percent in
76
recently adopted, allowing the provinces to determine the size according to the local
wage level. That is, the provinces may decide to increase the scale of funding of
individual accounts according to the wage growth situation. The central and local
governments provide a flat subsidy according to a funding ratio. However, the exact
percentages of contributions and subsidy levels vary among the provinces—with the
central government subsidy capped at 3.75 percent—and have been adjusted over time.
6.13
The coverage of the urban basic old age insurance scheme increased from 175
million contributors in 2005 (about 31 percent of the total urban population) to 201
million contributors in 2007 (34 percent of the total urban population), representing 54
percent completion of the 11th 5YP goal of 223 million contributors by 2010. Nationwide,
the goal of maintaining three consecutive years of increase of enterprise employee
pension benefits by certain percentages was realized, the average benefit increasing from
RMB 714 in 2005 to RMB 963 in 2007. The MOLSS plans to launch another three-year
pension benefit increase during 2008-2010.
6.14
For the pension scheme for civil servants and public institution employees
(“PSU pensions”), an executive meeting of the State Council in February 2008 approved
a plan for piloting reforms in five provinces. The main thrust of the reform proposal is to
adopt a common policy framework for the PSU pensions as the main enterprise pension
system. The main changes proposed include: sharing of responsibility for pension
contributions between government institutions and individuals, linking benefit levels to
individual contributions, gradual introduction of provincial pooling, and establishing
“institutional annuities”, to be managed by qualified investment managers.
6.15
In the area of voluntary pensions (enterprise annuity), the MOLSS issued
regulations on standardizing the management of enterprise supplementary pension
insurance, changing its name to ‘enterprise annuity’ and transferring management
responsibility to qualified investment managers and asset trustees. By the end of 2006,
about RMB 91 billion had been accumulated in the enterprise annuity scheme, with over
10 million employees from over 24,000 employers participating. From 2005 to 2007, the
MOLSS approved 24 new qualified enterprise annuity management institutions, bringing
the total number to 61. By the end of 2007, almost all former enterprise annuities —
which totaled about RMB 130 billion — were handed over to qualified investment
managers and asset trustees.
6.16
To support the development of rural pensions, the MOLSS launched a three-year
pilot for a modified voluntary rural pension scheme in eight counties/districts in January
2006. The main features of the piloted policies include: local government provided
matching subsidies for pension contributors in poorer areas, minimum contribution levels
based on the local dibao threshold or other thresholds such as local average net income,
flexibility for the local government to set the benefit levels based on amount of
contribution or other locally determined factors, and allowance for beneficiaries to
borrow money against their individual accounts in times of emergency. The target is to
the Liaoning pilot, 5 percent in Heilongjiang and Jilin pilot, 3 percent in the 8 provinces piloted in 2005.
77
increase the rural pension participation rate to 60 percent nationwide by 2020.
6.17
Unemployment Insurance. In line with the objectives of the 11th 5YP, a State
Council document issued in February 2008 calls for closer linkages between
unemployment insurance, social assistance, and employment promotion. It mandates
more stringent eligibility requirements tied to vocational training and public service
participation. The MOLSS also launched a pilot to expand UI fund expenditures in seven
provinces in January 2006. The pilot allows UI fund expenditures to be used for
vocational training, job introduction services, interest deductions for microfinance, and
other subsidies for UI beneficiaries as approved by provincial/municipal governments.
The Government is now in the process of amending the 1999 regulations on
unemployment insurance. Some provinces have also started amending the provincial
unemployment regulations, with the main focus being to expand the coverage to rural
migrants.
6.18
From 2005 to 2007, coverage of the UI program increased from 106 million
contributors to 116 million contributors, reaching 39.5 percent of urban employment.
This represents 71 percent completion of the goal of 120 million contributors by 2010 as
specified by the 11th 5YP. In addition to coverage expansion, UI benefit levels have also
increased significantly. By the end of 2007, per capita UI benefit level increased by an
average of 15 percent in 29 provinces.
6.19
Work Injury Insurance. The MOLSS is drafting an amendment to help
modernize the work injury insurance system, prioritizing precautions against work injury
while also supporting work injury compensation and recovery. The main innovation is
the allocation of a certain amount of work injury insurance reserves for work injury
precaution, which would support enterprises in conducting production safety-related
training. The MOLSS has also issued regulations that support the 5YP objective of
safeguarding the rights and interests of migrant workers, who are concentrated in
occupations that expose them to greater risk of work-related injury and illness. The
regulations aim to extend work injury insurance to almost all rural migrants employed in
high-risk industries and require that construction companies make work injury insurance
contributions for rural migrant workers on time and in full.
6.20
Coverage of the work injury insurance program increased from 85 million
contributors in 2005 to 122 million in 2007 contributors, accounting for about 42 percent
of urban employment. This represents a 54.5 percent completion rate of the 11th 5YP
goal of 140 million contributors by 2010. Around 39.7 million of these contributors were
migrant workers, indicating an increase of over 27 million compared to 2005. Around
174,000 high-risk enterprises made work injury insurance contributions for their
employees, covering 16.64 million rural migrant workers and accounting for 13.2 percent
of the total number of work injury insurance contributors nationwide. The total amount
of work injury insurance funds increased from 6.5 billion RMB in 2003 to 25 billion
RMB at the end of 2007, while the number of beneficiaries increased from 300,000 to
940,000.
78
6.21
Social Insurance Administration and Financial Management.
The
Government is undertaking a number of reforms to advance the 11th 5YP objective of
improving the administration and financial management of social insurance programs,
including the development of a standardized management system and measures to build
capacity for implementation. Recent regulations have also strengthened the audit system
for social insurance programs, requiring that audits cover at least one-third of
contributors, and established a four-level (county-municipality-province-central) system
for off-site surveillance with a unified database.
6.22
In 2006 and 2007 major pension fund corruption cases were identified. The
National Audit Office conducted major audits of social insurance funds in 2006 and
2007at the provincial and county levels. Audits in 2006 covered three categories of social
insurance funds, namely pension, medical, and unemployment insurance programs. The
main problems identified by the audits included misuse of social insurance funds — for
example for investment, lending, or expenditures that should be covered by local budgets
– and poor management.44 In 2007, nationwide audits covered the other two categories of
social insurance funds – the work injury and maternity insurance funds. At the same time,
voluntary audits of the rural pension insurance fund and other local social insurance
funds were conducted at the provincial and county levels.
(ii) Social Assistance
6.23
The draft Social Assistance Law is expected to be an important piece of
legislation that will define the overall approach to and framework of social assistance. It
provides guidance on the eligibility criteria, application procedures, benefit levels, and
other parameters for the dibao program; special assistance to low-income families;
wubao program; disaster relief; programs targeted at specific groups such as the elderly,
disabled, and homeless children; and other assistance programs. It also addresses
financing issues and stipulates that social assistance expenditures should be covered by
local government budgets, although the central government may provide support to areas
facing financial difficulties or large natural disasters. Local governments may establish
social assistance preparation funds equivalent to 1 percent of local government
expenditure to supplement expenditures on existing social programs or for unexpected
social assistance expenditures.
6.24
Rural and Urban Dibao Programs. The single biggest breakthrough in the area
of social assistance is the decision of the State Council to roll out the rural dibao program
on a nationwide basis, indicated in the July 2007 document. The rural dibao program is a
poverty gap program for the poorest of rural residents, using a similar policy framework
and features as the urban dibao scheme. The state council decision lays out basic policies
such as the establishment of eligibility criteria, means-testing mechanisms, and program
management. It also indicated that the program is expected to be financed by the local
government, with inputs from the provincial and central governments as needed.
44
Audit Results of Enterprise Employee’s Old-age Pension Insurance Fund, Urban Employee Basic
Medical Insurance Fund and Unemployment Insurance Fund (Document No.6, 2006).
79
Implementing regulations for the program are currently under preparation.
6.25
With the active experimentation in the last few years and the 2007 central
government decision, China’s dibao system has experienced rapid expansion. By June
2007, all 31 provinces had established rural dibao. As of the end of 2007, the number of
rural dibao beneficiaries had grown to 34.5 million individuals and 15.7 million
households. The total expenditure and the average benefit level have also increased
substantially (Table 6.2).
6.26
Supporting the 11th 5YP objective of increasing urban dibao benefit levels, the
urban and rural dibao benefit levels were raised in February 2008 by 15 RMB per month
and 10 RMB per month, respectively. The regulations also permit better-off areas to
implement higher increases. The Regulations on Urban Dibao, issued in 1999, will be
amended beginning in 2008 and are expected to be submitted for approval in 2009.
Table 6.2 Indicators for Urban and Rural Dibao, 2005-2007
Urban dibao
Indicator
No. of beneficiaries (millions)
2005
22.34
2007
22.71
No. of beneficiary households (millions)
9.95
10.66
Average benefit level (RMB/person per month)
156
182.4
19.07
27.48
No. of beneficiaries (millions)
8.25
34.52
No. of beneficiary households (millions)
4.06
15.73
76
70
2.53
10.41
Urban dibao expenditure (billion RMB)
Rural dibao
Average benefit level (RMB/person per month)
Rural dibao expenditure (billion RMB)
Source: Statistical Communique of Civil Affairs (2005, 2007), and Civil Affairs Statistical Yearbook 2007.
Note: For 2005, statistics are mainly from the Civil Affairs Yearbook which in some cases are different from those
from the statistical communiqué.
6.27
Notably, as a result of the nationwide expansion of the rural dibao system, most
rural tekun (extreme poor) are now covered by the dibao program. At the end of 2007,
only 300,000 people in 147,000 rural households were receiving tekun program benefits,
a decrease of 96 percent compared to 2006.
6.28
Wubao Program. In January 2006, the State Council issued regulations that shift
financing responsibility for wubao from village reserves to local fiscal budgets. The
regulations also stipulate that instead of village committees or town governments, the
provincial government or municipal/county governments with approval of the provincial
government will be responsible for determining wubao benefits. Supporting regulations
80
call on local governments to standardize eligibility approval processes, ensure stable
financing for the wubao program and set aside funds within the local budget (although
poorer areas may receive central government support), gradually expand centralized care,
set benefit levels according to the local situation, and strengthen program management.
Other regulations mandate increased government support for the construction of
centralized care facilities and improved living conditions for decentralized care
beneficiaries.
6.29
Under the 11th 5YP, the aim is to increase the ratio of rural wubao beneficiaries
receiving centralized care to 50 percent by the end of 2010, with an additional 2.2 million
beds in centralized care facilities. At the end of 2007, the total number of rural wubao
beneficiaries was 5.3 million, of whom 1.2 million or 23.6 percent were receiving
centralized care.
6.30
Disaster Relief. Improvements to disaster relief have been introduced through
policies and regulations that include: the establishment of a national disaster monitoring,
forecasting, and assistance system; procedures for the government response to natural
disasters; a promise to deliver disaster relief assistance within 24 hours after the disaster
strikes; and the establishment of 1,000 comprehensive disaster relief demonstration
communities, disaster relief teams in 85 percent of communities nationwide, and at least
one provider of public information on disasters in 95 percent of communities.
6.31
In 2007, the direct losses from natural disasters totaled RMB 236 billion or 1
percent of GDP. Central and local government expenditures for disaster relief assistance
totaled RMB 6.6 billion (0.03 percent of GDP) (MOCA, 2008). In 2005, the direct
economic damage caused by natural disasters was RMB 204 billion (1.1 percent of GDP)
and central and local government expenditures for disaster relief assistance were RMB
5.3 billion (0.03 percent of GDP).
6.32
Support to Land-Loss Farmers. Recognizing the vulnerability of land-loss
farmers, the Government has adopted targeted policies to provide them with employment
training, social security, and other types of social protection. The regulations mandate
different benefit levels according to the specific situation of the farmers, with financing
responsibility to be shared among the farmer, village, and local government.
6.33
Institutional Care for Children and the Elderly. There has been a substantial
increase in the number of beds in rest homes for the elderly and setting up children’s
welfare homes. From 2005 to 2007, the number of welfare homes for both elderly and
children increased from 38,000 (with 1,502,000 beds) to 42,000 (with 2,046,000 beds).
In 2006, China had 31,000 beds in rest homes for children and 1,136,000 beds in rest
homes for wubao beneficiaries,
6.34
Temporary Assistance. To support individuals in both urban and rural areas
who may experience transient poverty or other emergencies, the Government issued
regulations in June 2007 specifying the coverage, application procedures, methods of
benefit determination, delivery methods, management, and financing of temporary
81
assistance.
6.35
In 2007, over 5 million rural residents (0.7 percent of total rural population)
received temporary assistance. To relieve the negative effects of high inflation, the
central government allocated 2.36 billion RMB for an inflation subsidy for the poor.
(iii) Employment
Consistent with the 11th 5YP of Labor and Social Security approved by the State Council
in October 2006, the labor authority has placed policy and program focus on employment
promotion, labor force quality, and legislative and regulatory development concerning
labor protection. To promote job creation, the Program attaches priority to the
development of the service sector. From 2004 to 2007, the share of those employed in
the service sector grew from 30.6 percent to 33.2 percent, even though the share of the
service sector in GDP did not increase (Chapter 3).
6.36
Employment Promotion. While the unemployment pressure from SOE
restructuring has eased over the last few years, the Government continued to actively
promote employment growth. In addition to containing urban unemployment resulting
from the economic restructuring, significantly more attention has been placed on
employment opportunities for segments of the labor force where policy and program
support was considered necessary. The particular groups include the rural labor force,
new labor force entrants, and household with no employed persons (“zero employment
families”).
6.37
Numerous policies and pieces of legislation were promulgated to help promote
employment and reemployment. A 2005 State Council document emphasized the
importance of job creation, harmonious industrial/economic sector development,
integrated urban-rural labor market development, and public employment services
provision. One of the most recent developments was the adoption of the Employment
Promotion Law, which mandates that the governments at various levels expand
employment through measures such as economic development, coordination and
regulation of the public labor exchange programs (“human resource market”), including
guiding surplus agricultural labor to urban areas, improved employment services,
strengthened vocational education and training, simplification of procedures for workers
to start their own businesses, and the establishment of an unemployment warning system.
It also requires that governments at or above the county level establish special funds for
employment promotion.
6.38
To strengthen active labor market programs, the Government issued several
regulations to develop service standards, expand the group of targeted beneficiaries,
promote new employment service items, and strengthen skills development and business
start-up training. In 2007, over 6 million people received reemployment training; over
600,000 people attended business start-up training. Nearly 10 million people received
occupational qualification certificates. Around 5.2 million xiagang individuals or 60.8
percent of the total number of urban registered unemployed at the end of 2006 were
82
reported to have achieved reemployment.
6.39
In terms of policies targeted at specific groups, the MOLSS issued a circular
calling on provincial governments to assist zero-employment families in obtaining
employment through various channels including public service posts, informal
employment, and migration employment. The objective is to eliminate the existence of
zero-employment families in well-off regions by the end of 2007 and in other regions by
the first half of 2008. To promote employment among the disabled, the State Council
issues regulations in February 2007 that introduce employment mechanisms for the
disabled, favorable policies for enterprises with disabled employees, and specialized
employment services for the disabled.
6.40
Migration and Skills Development. Rural to urban migration has continued on
a large scale during the first phase of the 11th 5YP period. According to the rural
household survey of the National Bureau of Statistics, the total number of migrants in
2006 was over 130 million. An estimated one in five rural workers is a migrant worker,
and nearly one-half of the rural population lives in households with one or more migrant
workers. Migrants account now for about one-third of total urban employment.
6.41
Recognizing the significant contribution of migration and the profound
challenges it brings, the government took an active position to facilitate migration and to
manage the process. The State Council Opinion on rural migrant workers issued in March
2006 and the establishment of an inter-ministerial joint conference on migration that
includes 31 ministries represented a comprehensive approach to migration. Among the
long term agenda, the focus of efforts in the labor and social protection areas is placed on
skills development, employment services, and safeguarding the basic worker rights and
interests of migrant workers.
6.42
Skills development has been put among the top priorities for labor market
policies and policies on migration. Various government agencies are actively organizing
skills development programs, including the MOLSS, Ministry of Education, Ministry of
Agriculture, Leading Group on Poverty Reduction, and Ministry of Science and
Technology. A multi-ministerial “Sunshine Program” was established and the MOLSS
also launched a program for rural migrant workers in May 2006 aimed at providing nonagricultural skills training for 40 million rural migrant workers during 2006-2010. By the
end of March 2007, both the central and local governments had invested RMB 2.1 billion
in the rural migrants training program launched in 2006 and provided training for about
8.6 million rural migrants. The government estimated employment rate among the
trainees was above 70 percent.
6.43
To support the 11th 5YP objective of establishing an integrated urban-rural labor
market, the State Council selected Chongqing and Chengdu, two major municipalities in
southwest China, as national pilots for this integrated rural and urban development in the
context of rapid urbanization. Separately, MOLSS issued guidelines for piloting a
unified rural-urban employment system in areas with better employment situations,
stronger management capacity, and commitment to reforms and innovations. The pilots,
83
which will run from 2006 to the end of 2008, aim to establish a unified employment
management system, vocational training system, public employment service system,
labor management system, and social security system in both urban and rural areas.
6.44
Labor Regulation. During the first phase of the 11th 5YP period, the
government made significant progress to strengthen labor regulations and to better
protect worker rights, especially among migrant workers. The work covers all important
areas concerning labor regulation, notably labor contracts, minimum wages, labor dispute
resolution. Concerning migrant workers, a series of regulations were developed at the
central and local level to ensure that migrant workers receive on-time full wage payment,
to improve their access to social benefits, and to protect the right of migrant workers to
join trade unions and to be represented in employees’ representative conferences. The
State Council opinion is supported by a number of implementation policies and
regulations that lay out specific measures for achieving these objectives.
6.45
Contracts. A major development supporting the 11th 5YP goal of implementing
the labor contract system was the enactment of the Labor Contract Law in June 2007. The
law, which took effect on 1 January 2008, requires that employees have written contracts
providing details such as contract term, job description, compensation, and working
conditions. It limits the circumstances under which employers may revoke labor
contracts and requires severance pay based on the length of time the employee has
worked for the employer. The law also specifies legal liabilities for breaches of contract,
use of violence or threats against employees, and other violations. While there was wide
recognition of the need for formal labor contracts, concerns were raised by the private
sector about the potential impact of the law on the overall cost of labor, foreign
investment, and employment opportunities. The Chinese government went through an
open consultation process during the period when the draft legislation was under review.
It would be equally important for the government to monitor and assess its impact on
worker protection, employment, and economic development during implementation.
6.46
Minimum Wage. The government has moved towards developing hourly
minimum wages and exploring ways to adjust the minimum wage over time in a more
consistent and transparent manner. In July 2007, the MOLSS issued a circular that
establishes a system for regular adjustments to minimum wages. A draft regulation that
establishes a collective consultation/bargaining mechanism concerning wage
determination and increases is being completed. By end of 2007, 27 provinces had
increased their provincial minimum wage and established wage reserve fund systems for
on-time wage payments.
6.47
Dispute Resolution. The new Labor Contract Law requires that employers
consult with trade unions or worker representatives, as ‘parties of equal status,’ on
matters directly related to worker interests such as wages, work hours, leave and
vacation, occupational safety and health, training, and benefits. The Government has
been preparing laws and regulations to clarify some ambiguous aspects of the Labor
Contract Law. For example, the new Labor Dispute Negotiation and Settlement Law,
enacted in December 2007 and taking effect from 1 May 2008, establishes local labor
84
dispute settlement committees and standardizes procedures for labor dispute settlements.
The Employment Promotion Law, enacted in August 2007, strengthens worker rights by
protecting workers from discrimination based on factors such as ethnicity, race, gender,
and religious belief. It also prohibits discrimination against individuals with infectious
diseases (excluding disease that is easily communicable) and rural workers entering cities
for employment. The law allows workers who experience employment discrimination to
bring a lawsuit to the people’s court.
Analysis of results, Conclusions, and Main Challenges Ahead
6.48
Overall, the Government has made considerable progress in the area of social
protection and is on track to achieving the objectives laid out in the 11th Five Year Plan.
If this momentum can be maintained, China should be able to meet its targets on — or
even ahead of — schedule.
6.49
Regarding the content of the Plan, the social protection objectives and measures
are comprehensive and highly relevant to the current situation. The Plan responds directly
to the challenges China faces in addressing vulnerability, tackling inequality, and
improving the efficiency of the labor market and recognizes the cross-cutting nature of
the issues. The objective of social protection is consistent throughout the Plan,
emphasizing expanded coverage in both urban and rural areas and better implementation
and management of programs.
6.50
One possible lesson for future planning is in the formulation of indicators. The
overall Five Year Plan and Ministry-specific Plans cover a wide range of social
protection measures but provide a very limited set of indicators and targets. A more
comprehensive set of indicators, including not only coverage rates but also other
dimensions relevant to the various objectives, such as equity, economic efficiency,
administrative efficiency, etc. would greatly facilitate the monitoring and evaluation of
implementation progress. Furthermore, for indicators related to coverage, it would be
useful to set targets according to coverage rates—for example, percentage of total urban
workers contributing to pensions or percentage of migrant workers covered by work
injury insurance. Since the ultimate strategic objective is to extend coverage to the full
target population, coverage rates would provide a better sense of progress than changes in
the sheer numbers of individuals covered.
6.51
The progress that has been achieved toward the objectives of the 11th 5YP can be
attributed largely to the high level of Government commitment to improving social
protection. The Government has adopted an ambitious set of objectives for expanding the
coverage of programs and improving their implementation and management. The
objectives have been supported by significant expenditures. Going forward, a key
determinant of success will be how the various laws and regulations are implemented and
enforced at the local level, how various policies and programs are coordinated, and how
the fiscal responsibilities are shared by various levels of government.
85
6.52
Providing effective and sustainable social support while maintaining a
competitive and dynamic labor market will be the goal that the government will strive for
in further developing its social protection programs. The review would like to highlight
the following major challenges faced in advancing the social protection objectives of the
Five-Year Program.
6.53
First, there is a need to develop a more integrated approach to social protection.
On the one hand, despite the significant progress made in unifying the system, a high
degree of fragmentation among and within programs remains. A good example is China’s
public pension program which is still highly decentralized and fragmented – contribution
rates vary across municipalities; risk pooling remains at the sub-provincial level in most
cases; and portability of benefits is very limited. The separation of the enterprise pension
scheme from the schemes for employees of public institutions hinders labor movement.
On the other hand, as the government endeavors to expand the social protection coverage,
there is a tendency to take a piecemeal approach and develop additional schemes to cover
certain groups of population in need for support (e.g. land loss farmers, rural migrants).
Such an approach will not only imply inefficient risk management, more importantly, it
creates barriers for the functioning of a mobile and flexible labor market. It would be
better to cover these new groups under existing schemes.
6.54
Second, the overall social protection program still has very limited coverage, and
is heavily focused on the formal sector of urban China. Many programs are not able to
help the large rural population and the growing informal sector which accounts for about
half of the urban labor force. For example, public pension programs only cover less than
a third of all workers. Developing suitable programs and instruments to protect the rural
population is an intrinsically difficult task given the nature of rural income, the limited
financial and administrative capacity, and the traditional yet evolving informal protection
mechanisms in Chinese society. The task is made particularly challenging in the context
of rapid urbanization and a highly mobile rural labor force. At present, most migrants are
not covered by pension insurance and the program is not designed in a way that they can
truly benefit from it. While the focus has been to first ensure that they have access to
work injury insurance, much remains to be done in that area, as well as in health
protection for them in urban areas. Allowing for benefit portability and linkage between
urban and rural programs would be keys to successfully cover the broad population.
6.55
Third, striking the right balance between protection and competitiveness is a key
challenge for the government. On the one hand, the overall breadth of social protection
in China is limited, as reflected in the expenditure on social safety net as a percent of
GDP, or as the overall program coverage of population. On the other hand, financed by
social security contributions of more than 40 percent of the payroll, China’s social
insurance system in urban China is very costly, and has major labor market implications.
As the safety net programs are scaled up, concerns about their impact on the incentive to
work and welfare dependency will become more significant.
6.56
Fourth, making appropriate financing arrangement across different levels of
government will remain a key factor for the success of China’s social protection
86
programs. The significant legacy cost of the pension insurance needs to be dealt with
separately from the social insurance program by the Ministry of Finance, relieving the
reformed pension system from its historical burden and distortion. The cost of social
safety net programs cannot be totally born by the local governments as disadvantaged
areas with the greatest need for protection oftentimes do not have adequate fiscal
capacity. To fundamentally address the financial difficulties of poor areas in providing
adequate social protection and address the inequality in access to social protection
requires more systemic reform of the intergovernmental fiscal system.
6.57
Finally, while China made phenomenal progress in social protection
administration, much remains to be done. One major issue is the development of a
national social insurance administration. Without an effective national level authority,
most programs will remain very fragmented and poorly managed. Better administration
also requires clarification of the responsibilities for social insurance contribution
collections, improved management information systems, much strengthened financial
management and internal control, more developed means-testing methods for social
safety net programs that are less discretionary than current practice, and finally much
stronger capacity in delivering good quality service in all social protection programs.
87
B. Health Services
Background and Key Objectives
6.58
The health sector has seen considerable progress during the 10th 5YP period.
Government health spending increased, some major policy programs, such as New Rural
Cooperative Medical System (NCMS) were initiated, and a rapid response system for
health emergency and epidemics was established. By the end of 2005, China’s life
expectancy had reached 72; maternal mortality was under 47.7 per 100,000, a 10 percent
drop from 2000; infant mortality had dropped 40 percent from 2000 and was under 19‰;
and 26.6 percent of the rural population was enrolled in the NCMS.
6.59
Building on these achievements, the health sector, along with other social sectors
such as education and social protection are priorities in the 11th Five Year Program. The
Program calls for comprehensive reform of the health system, noting that the current
system does not meet the needs of the Chinese population. The main challenges identified
include; a poorly developed health service system in rural areas; increasing inequality
between rural and urban areas on access to health services and indicators including
Maternal and Child Health (MCH) status; and a severe burden from major infectious and
non-communicable diseases.
6.60
Accordingly, the 11th 5YP proposed a wide range of reforms in the areas of
health protection, public health promotion and major disease prevention, the health
service delivery system, and human resources. The overall objectives and quantitative
indicators are provided in the overall Five Year Program as well as the five years
program of relevant Ministries.
6.61
Overall objectives—to have established by 2010:




A basic health care system framework covering both the urban and rural
population.
A relatively standardized NCMS system and a three- tiered rural health
service delivery system, with an enrollment rate higher than 80 percent—the
only obligatory indicator in the plan for health sector.
A developed community health service system in the urban area to provide
public health as well as basic medical services to the urban residents.
A national essential drug system.
6.62
The overall 11th 5YP has only one health related quantitative indicator (the
coverage of NCMS). The ministry-specific five year programs included more indicators
concerning health outcomes, disease control, and health system development, as follows:
6.63
Major quantitative health outcome indicators for 2010:

Life expectancy of 72.5, a 0.5 year increase from 2005.
88

Infant mortality lower than 14.9‰, a 21.6 percent drop from 2005.

Under five-year-old mortality rate lower than 17.7‰, a 21.3 percent drop
from 2005.

Maternal mortality lower than 40 per 100,000, a 16.1 percent drop from 2005.

EPI coverage 95 percent in urban and 90 percent in rural areas, a 10 percent
increase from 2005.
There are several detailed targets on disease control (Table 6.3).
Table 6.3 Major Indicators on Disease Control
Indicators
Target
No. of HIV Infections
< 1.5 million
Growth Rate of STDs
< 10%
DOTs Detection Rate for New Smear Positive Pulmonary TB
>70%
Cure Rate
>85%
No of TB patients cured
>2 million
HBV prevalence (whole population)
<7%
HBV prevalence among children under 5
<1%
Percentage of Counties that has eliminated Iodine Deficiency (IDD)
>95%
Poliomyelitis
0
Measles
50% reduction
Incidence for encephalitis, Rabies, Hemorrhagic Fever
30% reduction
Malaria
Eradicated in 70% counties
Tobacco control
Occupational diseases
Reduced
tobacco
smoking
prevalence
Level of basic health knowledge
reach 80%, 70%, and 60% in east,
middle and west regions
Reduction of CVD, Diabetes,
Cancers, COPDs and Injuries
Reduction of incidence
Mental illnesses
Reduction of disability rate
Health Promotion
Non Communicable Diseases
Source: China’s authorities.
89
Main Initiatives and Overall Progress to Date
6.64
This section looks at the major initiatives in the areas of health protection
(insurance and medical assistance), the health delivery system, public health and major
disease prevention, and health system reform, and assesses progress to date.
(i) Health Protection
6.65
The current health protection system in China consists of four independent subschemes: Basic Medical Insurance for urban employees (BMI), Basic Medical Insurance
for Urban Residents (URBMI), New Rural Cooperative Medical System (NCMS) for
rural residents; and Medical Assistance (MA) program for the poor. The four schemes are
overseen by 8 different ministries. The 11th 5YP calls for the establishment of a multilayer health security system as well as the expansion of Basic Medical Insurance.
Specific priorities and goals are set for the different schemes in the ministry – specific
11th 5YPs and a number of measures have been adopted (Table 6.4).
Table 6.4 Health Protection - Targets and Progress
Indicator
2005
2007
Number of counties with NCMS coverage (share of
total, %)
21.7
86
Limited
local pilot
National
pilot began
in 88 cities
170
BMI for Urban Residents
BMI for urban employee (coverage, millions)
137.8
MA in rural areas (coverage, %)
MA in urban areas (coverage, %)
Target
for
2008
100
Target
for
2010
100
50
100
188
n.a.
100
Just started
90
100
100
100
Source: China’s authorities.
A. New Rural Cooperative Medical System (NCMS)
6.66
The NCMS is on the top of government’s health agenda, as indicated by the fact
that NCMS coverage is the only obligatory indicator on health in the overall 11th 5YP.
NCMS is a voluntary health insurance program for rural residents with contributions
from individuals and the central and local governments, with partial reimbursement of
health spending (about 30 percent for in patient care). It was piloted in 2003-2005 and
rolled out during the 11th 5YP.45 The NCMS was specifically named ‘New’ to distinguish
The NCMS was first proposed in 2002 in “Decision of the Central Committee of the Communist Party,
State Council on Further Strengthening Rural Health.” In early 2003, the State Council document
‘Suggestions on Establishing the New Rural Cooperative Medical System’ formally launched the piloting.
45
90
it from the ‘old’ cooperative medical system, which at its peak in the 1970s covered
almost 90 percent of China rural population but collapsed in 1980s along with the
collective economy. The NCMS differs from the old system because of: (i) direct
government contribution; (ii) a focus on inpatient expenses while the old CMS focused on
outpatient services; (iii) higher risk pooling; (iv) the voluntary nature; (v) the assumption
by the government of responsibility for its management; and (vi) the parallel creation of a
medical assistance program.46
6.67
From 2003 to 2005, the implementation was focused on pilots in a few counties
(cities). Under the 11th 5YP, the government decided to accelerate the implementation
nation wide and set the goal of 80 percent coverage by 2008. To support this new
objective, the government raised its contribution over time (Table 6.4). In 2006, the
contribution from both central and local government was doubled to RMB 20 per person
per year, bringing the total NCMS contribution to RMB 50 per person and bringing the
share of the government contribution to 80 percent. In early 2008, the contributions
doubled again. The central government also made its earmarked fiscal transfer more
accessible. In 2005, only 75 percent of budgeted central funding was prepaid to the
provinces; in 2006, prepayment was raised to 100 percent. Furthermore, starting in 2007
central transfers were adjusted at the end of each year based on the actual need of each
province. If the actual need were more than budgeted, the province would be able to get
the additional amount from the central government.
6.68
NCMS expanded rapidly in the first two years of 11th 5YP. The number of
counties with NCMS rose from 21.7 percent at end-2005 to 50.7 percent at end-2006, and
86 percent by the end of 2007—the goal set in the 11th 5YP goal has been achieved one
year earlier. The total number of enrollees and the total government contributions
increased substantially as well (Table 6.5). The government adjusted its target several
times. The latest goal is to roll out NCMS in all counties nationwide by the end of 2008.
Table 6.5 Progress Indicators on NCMS
Progress indicators
June 2004
June 2005
end of 2006
end of 2007
Counties covered / %
310
641/21.7%
1451/50.7%
Population covered (million)
95
225
508
Enrollees (million)
69
163
410
Enrollment rate (%)
72.6
72.6
80.66
Contribution (RMB)
(central/local/individual)
10/10/10
10/10/10
20/20/10
Source: The 2003-2007 National NCMS conference document compilation.
2451/86%
n.a.
730
86.0
20/20/10
New
Target
for 2008
100%
40/40/20
6.69
The MoH and MoF in early 2008 jointly proposed new areas for piloting,
including with an experiment on outpatient risk pooling, prefecture level pooling in less
populous areas; coordination and harmonization with the urban resident basic health
insurance so as to ensure basic medical protection for migrant workers and land-loss
46
Former Vice Premier Madam Wu Yi, In her speech at National NCMS conference in 2003.
91
farmers; and a link with the national heath reform. It is expected that the 100 percent
coverage target for 2008 will be achieved on schedule.
6.70
NCMS is a significant step towards providing financial protection to rural
residents when facing the burden of diseases. However, the current contribution (RMB 50
per capita in 2007) is very small relative to average annual health care expenses (RMB
749 per capita in 2006), making it hard to significantly reduce out of pocket health
expenses. As shown in the MoH’s evaluation, when covered by NCMS, the actual
reimbursement rate for in patient service remains as low as 30 percent. Moreover,
evidence is mixed regarding the impact of NCMS on health service cost containment.
The date suggests that average inpatient service expenditure has been contained in some
places, whereas in other places there is evidence that service providers have increased
service charges for the insured as the NCMS coverage has increased the affordability of
health care to farmers. Questions have also been raised regarding the sustainability of the
NCMS as a voluntary program because of the likely adverse selection issues.
Nonetheless, the government has noted it is not seriously concerned about this issue as
the program requires the farmers to enroll their whole family.
B. Medical Assistance Program (MA)
6.71
The aim of the MA program is to provide financial assistance to vulnerable
groups in rural areas with their medical expenses and NCMS contributions. The MA
budget is financed mostly by central, provincial, and county governments.47
6.72
In 2005, the State Council decided to introduce the MA program in the urban
areas as well. Following the introduction of the URBMI (see below), MA takes on the
new responsibility of helping with the contribution and copayment of the target
population to this new urban insurance scheme. The target population for the MA
scheme, including urban and rural areas, are the poor and disadvantaged groups (typically
tekun, wubao, and dibao) and the households who suffer large and potentially
impoverishing medical expenses.
6.73
The goal set in MOCA’s 11th 5YP is to establish an effective MA system that
covers all urban and rural areas and all targeted populations by 2010. The priority in rural
areas is to further standardize and refine the MA policy framework and to enhance the
link with the NCMS. The priority in urban areas are to expand the pilots and harmonize
the MA system with urban health insurance schemes.
6.74
MA has been rolled out rapidly in China (Table 6.6). Launched in 2003, all rural
counties had implemented MA schemes by the end of 2006,. Piloted in urban areas in
2005, 86 percent of urban cities (counties) had established MA by end September 2007.
The government budget on MA increased substantially, with the central government
transfer rising by 133 percent to RMB 3.3 billion in 2007 and local governments” transfer
47
Supplementary financing comes from the township level, lottery, donations, and development assistance.
92
up 40 percent to RMB 3.8 billion in 2007. During the first 3 quarters of 2007, MA
assisted 7.6 million cases with their medical expenses, and 23.3 million cases with
NCMS contribution. It has been reported that the MA scheme, along with NCMS, has
significantly reduced the financial burden of diseases. For example, in Chongqing, MA
beneficiaries only need to pay 20 percent of the total health expenditure out of pocket
whereas the non-MA NCMS enrollees would need to pay about 60 percent out of pocket
6.75
As a measure of the health safety net aiming at the poor and the vulnerable, the
establishment of the MA program is a very important first step. However, its impact is
still limited, although government financing is still increasing. Specifically, people who
qualified as the beneficiary for this program, according to the list of MoCA, comprise
less than 5% of the population. The majority of the vulnerable groups and people who are
near poor can not benefit from the program. The government acknowledges the situation
and is mobilizing support from possible resources, including charity and donation. The
government, especially at the central level, is also committed to increase its spending on
this program.
C Urban Resident Basic Medical Insurance (URBMI)
6.76
A major policy breakthrough is the introduction of Urban Resident Basic
Medical Insurance (URBMI). 48 This scheme is a voluntary health insurance program
covering urban residents not covered by the urban basic health insurance scheme (BMI),
a program for the urban formal sector. The main target groups are students, children and
unemployed urban residents.
Table 6.6 Indicators on MA
2005
2006
Rural MA
2007
1095
300
795
2762
950
1352
4863
2120
1981
County coverage (share of total, %)
n.a
100
100
No. of beneficiaries (million)
No. of beneficiaries who reveived
assistance in joining NCMS
(million)
11.1
8.67
18.23
14.80
35.65
29.57
Others
2.43
3.43
6.07
Subsidy level per capita (RMB)
Source: Ministry of Civil Affaires
385
365
420
Total funding (million)
Central government
Local government
percentage
increase
from 2005
607
149
221.2
2005
2006
1141
300
841
2101
480
1349
Urban MA
2007 percentage
increase
from 2005
3621.8
1220
307
1868
122
39.1
90
1.63
2.11
5.64
319
485
365
Anounced in ‘State council’s guiding principle on the pilot to establish urban resident basic medical
insurance’ (2007).
48
246.0
93
6.77
Following a similar policy framework as BMI, URBMI focuses largely on
inpatient expenses and catastrophic outpatient expenses and is managed at the municipal
level by MLoSS. Financed mainly from household contributions, governments at
different levels provide subsidies.49 Employers are also encouraged to contribute for the
family members of their employees. Municipal governments decide over the total
contributions per person. The MoLSS recommends RMB 200 per person per year.
6.78
Preparatory work including pilots by local governments started in 2005, and the
URBMI was piloted in 88 cities in September 2007. By the end of 2007, the scheme
enrolled 40.7 million people, with an enrollment rate of around 60 percent of the
estimated informal sector. The government has proposed an ambitious plan to expand the
program, aiming at 100 percent enrollment by end 2010.50
D. Urban Employee Basic Medical Insurance (BMI)
6.79
The 11th 5YP of MoLSS calls for further improvements of the Urban BMI and
further expanding its coverage.51 The Program targets coverage of 300 million people by
the end of 2010 for BMI and URBMI combined, with the employee BMI targeted to add
40 million new enrollees in three years starting from 2006.
6.80
As the scheme expands, the major challenge is how to expand the coverage to
enterprises with economic difficulties, citizens with flexible jobs, and the large flow of
migrant workers. Together with other ministries (MOCA, MOF), MoLSS has issued
several documents to provide policy support and guidance in addressing those
challenges.52 At end 2007, 31 million new enrollees were added during the 11th 5YP. If
progress remains constant, the government should be able to meet the 40 million new
enrollees target by the end of 2008.
6.81
Overall, while a rapid expansion of health protection is being achieved well on or
ahead of schedule, challenges remain. Concerns have also been raised regarding the
design of the health protection schemes. First, all three insurance schemes (NCMS,
URBMI, BMI) largely focus on inpatient care which dis-incentivize the provision of
primary care and preventive care. The family saving account for outpatient service has
very limited impact and is against the risk sharing principle of insurance. Second, the
funds run considerable surpluses (over 30 percent in case of the BMI scheme), which
implies a mis-match of revenue and expenditure. Better actuarial modeling seems
49
RMB 80 per person. For the central-western areas, the central government provides RMB 20 per enrollee.
For vulnerable groups, including Dibao people, the government will provide additional subsidies.
50 In February 2008, Madame Wu Yi announced it will be rolled out to 229 cities in 2008 and enrollment
should reach 50 percent by end 2008, 80 percent by end 2009, and 100 percent by end 2010.
51
Managed by MoLSS, this is a mandatory medical insurance scheme for the urban formal sector
(excluding civil servants and PSU employees), with both employers (6 percent of payroll) and employees
(2 percent of payroll) contributing. At end 2005, about 50 percent of urban employees were covered.
52
Guidance on citizens with flexible employment in joining BMI was issued in 2003, and a ‘Notice on
expanding coverage of migrant worker’ was issued in 2006.
94
necessary to reduce the surplus and provide better coverage to the insured. Third,
segmentation among the four independent health protection schemes also makes risking
pooling and joint management difficult. Fourth, there has been very slow progress in
terms of the provider payment reform. Up to know, fee-for-service is still dominant in
China (covering about 80 percent of health). It has been proven internationally to be
ineffective with regard to cost control. Now that China has done a remarkable job in
rapidly setting up and rolling out a health protection framework in recent years, it is
important to focus on addressing the concerns raised and further improve the system.
(ii) Health Service Delivery System
A. Rural Health Service Delivery System
6.82
The 11th 5YP calls for improving the rural health service delivery system,
especially in the less developed central and western areas. The goal is to strengthen the
three-tier health services delivery system in rural areas, with health facilities at county
levels (including county hospitals and county MCH stations), township health centers,
and village clinics. The target set in the 5YP of the MOH is one public THC in each
township and at least one village clinic in each administrative village.
6.83
A major development plan named “Building and Development of Rural Health
Care Delivery System” has been formulated and implemented. The main tasks are to
improve the hardware of rural health institutions, to reform the management and
operations and to enhance professional training.53 Another major initiative is the project to
mobilize urban physicians to work in rural areas for 1-2 years.54
B. Urban Community Health Service System
6.84
The State Council views the urban community health service as an important and
innovative approach for reforming the urban health care system. The urban community
health service is meant to address the problems of ‘difficult to seek health care and
expensive to have health care’ by developing community health centers (CHCs) and
general practitioners whose services are less expensive and more easily available.
6.85
The objective during the 11th 5YP is to further expand community health
services. The goal is to establish a well-developed urban community health service
53
Since 2006, RMB 21.6 billion has been invested by government at different levels on the construction
and renovation of rural health services facilities in central and western regions. Central government earmarked transfers were RMB 2.7 billion in 2007, to be used for the construction of 3016 village clinics and
basic equipment procurement for 11652 THCs. During 2005-07, the central government also provided
RMB 942million for training of 1.45 million health professionals in rural areas including county health
bureau directors, THC directors, medical professionals of THCs and village doctors.
54
The central government has transferred RMB 290 million for the project. Since 2005, around 15,900
physicians from secondary hospitals in the urban area of the relevant counties—that is, not from the large
cities—have been assigned to 5295 Township health centers in 21 provinces.
95
system for cities at the prefecture level and above, and for the cities at county level by
2010, although it is not clearly defined what a well-developed system stands for.
6.86
To support this objective, a number of government policies were promulgated. In
2006, the State Council issued a Policy Circular providing the guiding principle,
development targets and 7 priority areas for the establishment of community health
service system. 55 In August 2006, a series of 9 supplemental policy documents on
community health were consecutively issued jointly by a range of ministries and agencies
to regulate and guide the implementation of the community health nation wide. 56 In
August 2006, 29 cities were selected for the national pilot for community health services.
Moreover, different levels of the government provided budgetary support.57
6.87
As the result of strong government commitment, the community health network
was expanded rapidly throughout the country. By the end of 2006, 98 percent of cities at
prefecture level and above have established a total of 23,000 community health service
centers and stations, up 48 percent from 2005.
6.88
It is still too early to assess the impact of the community health centers on the
accessibility and affordability of the health services. The service quality in these facilities
needs to be improved. Residents who used to go to tertiary hospitals even for minor
health problems need time to built their trust on community health services; arrangements
for financing and operation of CHC are being explored; and it remains unclear how the
CHCs can be effectively integrated into the existing health service delivery and insurance
systems. International experience and best practice on primary health care, such as the
gatekeeper approach of the UK, should be of value for China in its next development
stage on community heath services.
(iii) Public Health and Major Disease Prevention
6.89
During the 10th 5YP the government established three major pillars for public
health: the center for disease control, a center for health inspection, and a medical system
for public health emergency and infectious diseases. With the importance underscored by
the SARS episode of 2003, coordination on public health issues like HIV/AIDS, SARS,
Avian Influenza, and Schistosomiasis became institutionalized and more systematic. The
Cooperative Medical System was revitalized. To strengthen primary health care and
public health, the rural health system was enhanced by hospitals and health centers at the
county and township levels, and community health centers started. To improve maternal
and child health (MCH) services and achieve the MCH related MDG targets, the
Reduction of IMR and MMR and Elimination of Tetanus among Newborns was
55
Suggestions of the State Council on Development of Urban Community Health Service (2006, No. 10),
the first policy circular on community health services issued at the level of the State Council.
56
The 9 documents are listed in the Annex 8.
57
In 2007, the earmarked transfer from the central government for urban community health center
development was RMB 3 per capita for the central area and RMB 4 per capita for western provinces. A
fiscal transfer for training was also provided by the central government.
96
launched. A major accomplishment was the development of a web-based, real time
disease reporting system covering major public health institutions down to township
level.
6.90
The Government has committed to universal access to basic health services.
Discussions are underway to set up a National Health Commission to replace the current
disease specific State Council Taskforces. A strategy setting forth the vision of Healthy
China 2020 is under development. The State Food and Drug Administration has been
merged with MOH. Major public health initiatives undertaken so far include: (a) an
enlarged beneficiary package for public health—the National Immunization Program has
been expanded and now covers prevention for 15 infectious diseases, with free treatment
for HIV infection, TB, HBV, and piloting of free screening and treatment of RTIs among
women of reproductive ages have been scaled up; (b) a safe drinking water initiative has
been launched with a investment of RMB 65.5 billion to improve access to tap water in
rural areas; (c) a standardization movement has been underway in order to improve the
performance of CDCs. (d) reduction of IMR and MMR and elimination of Neonatal
Tetanus Project have been continued; and there have been discussions on free hospital
delivery for all pregnant women.
6.91
To support and sustain these efforts, government spending on public health has
increased significantly (Table 6.7). From 2003 to 2006, the share of public health
expenditure in total health expenditure increased by 1 percentage point while the share of
health in total government spending remained around 4.5 percent from 2003 to 2006. The
increase in public spending is a welcome achievement and should serve as a basis for
improvements in health services.
Table 6.7 Total Government Expenditure and Spending on Health
(change, percent)
Year
Total
Health
Public Health
2000
20.5
10.7
n.a.
2001
19.0
12.8
13.2
2002
16.7
13.5
19.1
2003
11.8
22.9
46.8
2004
15.6
15.8
18.0
2005
19.1
20.0
26.5
2006
19.1
14.6
15.6
Source: China’s authorities.
6.92
Implementation of the health services reforms under the 11th 5YP is progressing
unevenly. With respect to the key health status indicators, targets for 2010 for average
life expectancy and MMR have already been achieved. It is very likely that the targets for
2010 for IMR and U5MR will be achieved in 2008. On vaccine preventable diseases,
only the coverage for DPT and OPV is lagging behind the target of 90 percent population
coverage by 2010. Otherwise the coverage of key EPI vaccines has reached the national
97
target.58
6.93
On key disease prevention and control, targets for 2010 for HIV infection, DOTs
detection, the cure rate for new smear positive TB, and HBV prevalence rate for children
under 5 years old have been achieved. The overall HBV prevalence rate is very close to
the target of 7 percent in 2010. However, there are serious challenges on tobacco control,
rural water and sanitation, birth defect prevention. There is also a considerable gap
between the most recent coverage rate of Iodine Deficiency Control of 87.9 percent and
the target of 90 percent in 2010.
(iv) Health System Reform
6.94
Both the overall 11th 5YP and the MOH’s 5 year program called for
comprehensive health system reform to make health services more accessible and
affordable. An Inter-ministerial Committee for Health Reform was established in 2006,
representing 15 relevant ministries with the NDRC Minister and the Minister of Health as
co-chairs. Its mandate is to develop a comprehensive health system reform plan.
6.95
The Committee has undertaken a series of activities, including field investigation,
themes studies on four major reform areas, repeated internal consultations, and
consultations with a wide range of interest groups. In May 2007, 8 institutions including
research bodies, universities, and international organizations, including the World Bank,
were invited to contribute a reform plan. This process of preparing the health reform plan
has set an unprecedented model in China for formulating a major national reform policy.
6.96
The draft plan has been completed and has been endorsed by the State Council.
Public consultations are currently underway, which will be followed by revisions and
modification. The next step will be a national pilot in selected cities. For this year’s
budget, central government has put aside RMB 56 billion to finance the pilot.
6.97
The details of the plan are yet to be published, but the direction and the
framework of the reforms have been revealed gradually--indicated in speeches of senior
officials and official documents. The overall objective is to establish a “basic health care
system” for urban and rural citizens which will provide basic medical care and public
health services that are “safe, effective, convenient, and low-priced.” The basic
framework comprises a public health system, a medical service delivery system; a drug
supply system; and a health protection system that consists of three main health insurance
programs-- BMI for the urban formal sector, URBMI for urban residents, the NCMS-plus an MA program to subsidize health care costs for the very poor. From the discussion
above, it is clear that the development of this basic framework has already taken place.
The framework of the system should be in place by 2010. All the population should then
be covered by one the three health insurance programs. The basic health care system
should be fully functioning by 2020.
58
EPI coverage for different diseases is used as a proxy indicator for vaccine preventable diseases.
98
Factors Affecting the Achievement of the Objectives
6.98
During the first two years of the 11th 5YP, significant progress has been made in
improving the provision of health services. The health protection system was expanded
nationwide, the health service delivery system has been strengthened, and improvements
have been made in major diseases prevention and control. The remarkable progress can
be attributed to the significant commitment of the central government to reform the health
services system.
6.99
In the case of the NCMS, at the central level, the State Council established a
mechanism to convey joint ministerial meetings for NCMS, which involved 11 ministries
or bureaus of the central government and were presided by Vice Premier Madam Wu Yi.
At the local level, the progress of NCMS implementation was considered as one of the
performance assessment indicators for local government officials. The political stakes
were very high; the NCMS was not allowed to fail. Government documents have
provided policy assurance and technical guidance for the implementation on the ground.
6.100 Central Government spending on health increased substantially (Table 6.8). For
the first time since 1997, the percentage of out of pocket (OOP) expenditure in total
health expenditure dropped to under 50 percent (49.3 percent) in 2006 (the OOP rate
peaked at 60 percent in 2001.
Table 6. 8 Central Government Health Spending(RMB billion)
Indicator
2005
2006
2007
Increase in 2007
(%)
2008 budget
17
63
277
83
4.4
8.3
87
12.6
Ear-marked transfer on Public
Health
4.3
11.4
167
25.3
Ear-marked transfer on disease
prevention and epidemic control,
.06
0.12
100
n.a
1.43
3.34
134
n.a
Central government input on
heath
Earmarked transfer on Public
Health
Ear-marked transfer on Medical
assistance
0.6
Source: China’s authorities.
6.101 This effort however would need to be continued or even strengthened. Even
though government’s health spending has consistently increased in recent years, it is still
low compared with international standards. Including spending on health insurance,
China’s government health expenditure in 2006 accounts for only 40.7 percent of total
national health expenditure, which is among the lowest in the countries in Figure 6.1.
6.102 In addition, financing of the new health initiatives is largely relying on financial
input of the local government, which is difficult for some. China’s current fiscal system is
very decentralized. It is challenging for local governments in less developed areas, where
99
health issues are often particularly serious, to have adequate resources to support the new
programs. Central government fiscal transfers are supposed to provide assistance to those
areas. It would be important to investigate whether the intergovernmental fiscal transfer
has worked and whether the funds have reached the target population and have been used
efficiently. Unfortunately, data is not yet available or accessible for this purpose.
Figure 6.1 Construction of National Total Health Expenditure
Percent
100
Private
expenditure on
health (% of
the total )
90
80
70
60
50
Government
expenditure on
health (% of
the total)
40
30
20
10
0
A
U
li a
ra
m
do
ng
Ki
t
us
d
e
nc
y
an
m
te
ni
a
Fr
er
G
n
pa
Ja
ea
or
K
a
tin
en
rg
A
an
si
us
nd
R
la
ai
Th
na
hi
C
es
in
pp
i li
Ph
a
si
ne
do
In
a
di
In
Source: World Bank’s commissioned background paper on ‘Public Expenditure and Resource Allocation in
the Health Sector in China
6.103 Another major challenge is the complexity and fragmentation of the health
services and their regulation. In addition to the MOH, dozens of line ministries and
bureaus at central level are involved in its provision, administration, and regulation. For
instance, 4 basic health protections schemes are managed by 3 different ministries,
namely MoLSS, MoH and MoCA; price setting is controlled by the NDRC; personnel is
managed by the Ministry of Personnel; and other ministries manage other aspects. This is
why the working group on the ongoing health system reform includes representatives of
16 ministries. This structure of administrative responsibilities leads to unnecessary
fragmentation and has made it very difficult to introduce any reforms that would trigger
changes in responsibilities. To address this problem, calls have been made for the
establishment of a National Commission on Health (NCH) which would oversee and
coordinate all the health-related ministries. The NCH would replace the current disease
specific State Council Task Forces (such as the National Working Committee for Women
and Children, State Council AIDS Working Coordination Office, Committee for Patriotic
Health and Sanitation Movement). However, these calls have not led to policies.
6.104 Now that many health protection systems and health delivery facilities have been
established, it is important to monitor how many people are covered and can make use of
the systems and facilities.
6.105
Many of the current insurance schemes largely focus on in patient care. To
100
increase the efficiency of the health system, the government could consider providing
stronger incentives for using primary care and preventive care.
Conclusions and Lessons Learned
6.106 Overall, the general development objectives laid out in the 11th 5YP are
comprehensive and appropriate, aimed well at addressing the major challenges faced by
the current health system. There has been significant progress to date, and prospects for
achieving the objectives are good.
6.107 The targets set by the government on health protection and major disease
prevention is being realized in advance of the schedule. The speed at which the programs
are rolled out is very impressive compared to the time it usually takes to set up such
nationwide programs in other countries. In a few areas progress is lagging behind. The
coverage for DPT and OPV is lagging behind the target of 90 percent population
coverage by 2010, and the coverage rate of Iodine Deficiency Control is significantly
behind target. Enhanced work is also needed on tobacco control, rural water and
sanitation, and birth defect prevention.
6.108 Health protection will need to continue to be a key focus for policymaking.
While a rapid expansion of health protection is successfully addressing a key constraint
on further improvements in health status and living standards, important issues remain.
First, while schemes including the NCMS are significant steps providing health
protection to rural areas, the current contribution is small compared to annual health care
expenses. Moreover, the experience suggests that the NCMS in some areas leads to
increased service charges. The establishment of the MA program is a very important first
step in setting up a health safety net for the vulnerable and poor. However, the impact on
people’s finances is still limited, although government financing is still increasing.
6.109 Now that China has done a remarkable job in rapidly setting up and rolling out a
health protection framework in recent years, in the next stage it is also important to focus
on addressing some design issues and further improve the system. Design issues include:
the three insurance schemes largely focus on impatient care, which dis-incentivizes the
provision of primary and preventive care; the insurance funds run considerable surpluses,
which implies room for better and/or more coverage of the insured; and the health system
would benefit from less fragmentation, to improve risk pooling and joint management;
and there is a need for progress with provider payment reform.
6.110 Possible lessons that could be learned concern the content and the indicators of
the plans. First, the plan seems somewhat conservative in setting health related targets;
there is room to be more ambitious considering China’s economic development and the
fact that, improvements in life expectancy and Infant Mortality Rate reduction, most
middle and high income countries in East Asia have seen more progress in outcome
indicators than China (Figure 6.2).
6.111 Second, one major challenge in China is formed by the significant disparities in
health status and outcomes among different regions. National averages tend to mask the
101
disparities in health outcomes between urban and rural areas, different geographic areas,
as well as different groups. For instance, MMR and IMR in rural areas in 2002 were 2.6
and 2.7 times higher that those in urban areas. Disparities in other health outcomes also
exist. Targets in the next 11th 5YP on how to narrow down these gaps would be of great
value, as they can guide efforts to address the challenge of inequity.
6.112 Third, in the key disease related indicators, there is only one indicator on non
communicable diseases (NCDs) and it is not clearly defined. Given the fact that more
than 81 percent of deaths in China in 2002 are attributed to NCDs, more indicators
concerning NCDs would be desirable. As a matter of fact, there currently is no national
NCD prevention and control plan, and spending on NCDs has been minimal compared to
that for infectious diseases such as HIV/AIDS and TB.
Figure 6.2 Improvements in Life Expectancy and IMR Reduction in
the Asia Pacific Region (1985-2005)
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Annuall Rate of LE Increase
China
Australia
Malaysia
Sri Lanka
Annual Rate of IMR Reduction
Philippines
Indonesia
Viet Nam
Thailand
Source: World Bank, World Development Indicators.
6.113 Finally, better health indicators such as Healthy Life Expectancy at Birth rather
than Life Expectancy should be considered in measuring the population’s health gains
because the indicators cannot fully capture the increasing burden from NCDs and
injuries.
6.114 To take the discussion further, a systematic and cross-board monitoring and
evaluation system seems to be warranted in assessing such a large scale and
comprehensive national develop plan. It appears that while the government has
developed many medium and long term initiatives (including for infectious diseases
prevention and control, nutrition, and mental health), there has been no attempt at
rigorously monitoring and evaluating progress. So far, some of the evaluations that have
been done, as for NCMS and HIV/AIDS, tend to be qualitative rather than quantitative,
use case studies rather than representative sampling, focus on process rather than
outcomes, and focus on achievements rather than on identifying risks and issues. Moving
into the second phase of 11th 5YP, it might be the time now to start the building of an
evidence based, systematic monitoring and evaluation system.
102
C. Education Development
Background and Key Objectives
6.115 Although significant achievements were made during the 10th 5YP period in
education, the education system could not fully meet the demands arising from rapid
economic and social development with respect to the quantity and quality of labor force.
Compared to the group of middle income countries, China lags behind in some key
indicators including education input and gross enrollment rate at preprimary, secondary
and tertiary levels of education (see Annex 10). The 11th 5YP, therefore, places emphasis
on improving education, in line with the guiding principle to improve the capacity for
independent innovation and the policy orientation to shift the drivers of economic growth
from ‘physical investment’ to ‘science, technical progress and human capital investment’.
Through investment in education, the government hopes to turn China’s huge, often low
skilled labor force into rich human resources so as to promote more sustainable and
higher quality growth.
6.116 The 11th 5YP therefore calls for a wide range of measures aiming at improving
access, quality and equity at primary, secondary and tertiary levels, encompassing
improvements in management and governance. This is the first time that promoting
educational equity is identified as a key objective. The aim is to address the challenge of
providing affordable education to disadvantaged groups and regions. Ultimately, more
equal provision of education will contribute to the building of a harmonious society.
6.117
The 11th 5YP lays out the five main tasks for educational development:

Universalizing compulsory education (CE) by improving access to CE in rural
area, especially for girls, children of minority nationalities, and children from
poor families; promoting more equitable development among urban and rural
areas, and among regions; and requiring local governments to provide CE to
migrant children in urban area.

Promoting vocational education (VE) by expanding the capacity of secondary
VE to 8 million new entrants annually, for vocational senior secondary
education to reach the same capacity as general senior secondary education;
and improving the quality of VE through teaching & learning reform,
adopting more apprenticeship programs and school-enterprise linkage
programs.

Improving the quality of higher education (HE) by controlling the expansion
of capacity; strengthening research, improving teaching and learning methods,
and developing key universities and key specialities programs.

Increasing educational investment by allocating more resources for education
103
with a target of public education expenditure of 4 percent of GDP by 2010;
promoting educational equity by increasing transfers from central and
provincial governments to rural and poor areas, and middle and west regions;
and setting up a student-aid system covering students at all levels.

Deepening educational reform by establishing standards of schooling;
supporting private education; regulating school fees; reforming the test,
admission and evaluation systems; further reforming the curricula of basic
education; and increasing the autonomy of schools.
6.118 The 11th 5YP provides a few indicators for compulsory education, vocational and
secondary education, and educational investment. These are supplemented by additional
indicators from the 11th 5YP of the Ministry of Education.
Implementation Status of Main Tasks
(i) Documents and Legislation Issued and Reforms and Programs launched in 2006-07
6.119 The central government has been very active in pushing forward education
development: many pieces of legislation were adopted and programs and reforms
launched (Annex 10). The range of initiatives has been broad, from pre-schooling to
higher education, from reforms in teaching & learning to reforms in management and
governance. The highlights include universalizing CE through public investment,
expanding VE through student aid and upgrading facilities and equipment, improving HE
through teaching & learning reform and governance (Table 6.9).
Table 6.9 No. of Documents and Programs Launched in 2006-2007
Category
Compulsory
Education (CE)
Vocational Education
(VE)
Higher Education
(HE)
No. of
documents/laws/
programs
9
To set up free compulsory education
To reform teacher management
To update legislation
7
10
Educational investment
8
Institutional reform
14
Source: China’s authorities.
Content
To award excellent scholars and outstanding research teams;
To enhance teaching and learning reform;
To set up a quality assurance system
To regulate the implementation of free CE, rehabilitation of
rural school building, special schools in central and west
regions;
To regulate the student aid programs at primary and
vocational levels
To strengthen the kindergarten management, private
institutions;
To regulate the implementation of HE teaching reform,
vocational education reform
To regulate school fees, Sino-foreign school cooperation
104
(ii) Main Initiatives and Key Results
Compulsory Education (CE)
6.120 Good progress has been made in universalizing nine-year compulsory education
in the two years. This was achieved mainly through substantial public spending by
government at all levels. Free compulsory education in rural China was implemented in
2006 and gradually extended to urban areas in 2007. By September 2008, free
compulsory education should have been achieved nationwide. The targets on access to
primary and junior secondary education—on enrollment rates and retention rates—were
reached three years ahead of schedule in 2007 (Table 6.10). As a result, the Chinese
government declared that one of the targets of Education for All (EFA), namely Two
Basics in China—basically universalizing compulsory education and basically reducing
adult illiteracy—was achieved in the western region in 2007.
Table 6.10 Key Indicators for Compulsory Education
(percent)
Objectives
Indicators
Capacity expansion and system development
(addressing access issue)
Net enrollment rate of
primary
Urban & rural and regional equivalent
(addressing equity issue)
1. 3 targets for 3 regions
2. Basically reached regional equity—all
schools reached the benchmarks on facilities
and quality
Quality improvement
(addressing low quality)
1. quality of teachers, especially in rural areas,
improved
2. teaching & learning reform
Source: China’s authorities.
Target2010
>99
2006
2007
99.3
99.5
Gross enrollment rate of
junior secondary
>98
97
98
Retention rate of junior
secondary
Enrollment rate of 3-year
pre-school
Gross enrollment rate of
senior secondary
>95
93.8
94.7
>55
42.5
44.6
80
59.8
66
Population coverage rate
in the areas where Two
Basics has been achieved
Illiterate rate of cohort
aging over 15
>99
98
99
2
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
105
6.121 Efforts were made to narrow educational disparities between urban and rural areas
and among regions. Specifically, the condition of rural schools has been improved
through the boarding school program, the school building rehabilitation program, and the
distance learning program. Seven thousand boarding schools were constructed in rural
areas and RMB 11 billion was invested in the distant learning program to cover 360,000
rural schools. However, without more research on the quality of establishments in urban
and rural areas, it’s hard to assess progress toward the objective of regional equity, “all
schools reach the benchmarks in terms of facilities and quality.”
6.122 Efforts were also made to improve the quality of teachers in rural area. Various
programs such as the Special Post Program, the Educational Masters Program, the
Volunteer Program, and the Teacher Rotation Program were introduced to improve
teacher training and teacher deployment. Curriculum reform was deepened and extended
to senior secondary schools. However, it is difficult to assess the results of these efforts
as there are no monitoring targets, timetable, and indicators for these initiatives on quality
improvement.
Vocational Education (VE)
6.123 Technical and vocational education and training (TVET) expanded rapidly in the
past two years, helped by new initiatives on school infrastructure and student aid. The
target of equal enrollment between general secondary and vocational secondary education
was reached three years ahead of schedule; the same kind of target for tertiary education
was achieved even in 2006 (Table 6.11).
6.124 The initiatives to increase school-industry linkage, apprenticeship, contract
training, and part-time program are in the right direction and in line with the international
trends in the area of TVET. However, it is difficult to assess the results as there is no data
to indicate if the expanded TVET institutions, especially in rural areas, provide better
educational service for farmers and agriculture, and for rural to urban migration. Also,
there is no data for the initiatives on regional development and quality improvement.
Higher Education (HE)
6.125 Good progress has been made on expanding HE, with the new enrollment of
graduates kept stable while the gross enrollment rate of undergraduates kept increasing.
By the end of 2007, the gross enrollment rate was 23 percent, higher than the regional
average of the East Asia and Pacific region of 20 percent (Table 6.12).
6.126 Many programs and initiatives were put in place to improve the quality and
governance of HE. The Ministry of Education completed the first round evaluation of
undergraduate studies on 92 universities by the end of 2007 and published the results.
Graduate admission reform was conducted. The second phases of 211 Project and 985
Project, which aim at developing key universities and key specialities, were completed.
106
6.127 However, there are no data for overall indicators to monitor the progress. And
there are also no data or information on the quality improvement programs.
Table 6.11 Key Indicators of Vocational Education
Objectives
Indicators
Capacity expansion and system
development
(addressing access issue)
New entrants of :
General senior secondary
Vocational senior secondary
New entrants of
General Higher Education
Vocational Higher Education
No. of trainees
Urban & rural and regional
equivalent (addressing equity
issue)
1. 3 targets for 3 regions
2. partnership program
3. county VET center program
Quality improvement (addressing
low quality)
1. improve teacher quality
2. teaching & learning reform:
contracting training, apprenticeship
etc.
3. Model TVET institutions program
4. Joint conference-management
reform
Target2010
the same
number of
new
entrants
the same
number of
new
entrants
60 M
migrant
farmers
got trained
2006
2007
8.71 M
7.5 M
(46%)
8M
8M
(planned)
2.47 M
2.93 M
(54%)
5.67 M
8.61 M
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
59
1000
centers
1000
secondary
100
college
Source: 2006 data from Vocational Educational Research; 2007 data from China Education Blue Paper.
www.people.com.cn.
6 provinces reached the target; Zhe Jiang and Chongqing had gone beyond the target.
(iii) Educational Investment and Institutional Reform
6.128 The governance of public education service was greatly improved through
financing and institutional reforms since 2006. Compulsory education was financed by
governments. With 90 percent of students from rural poor families at secondary
vocational education was covered by student-aid program, a comprehensive student-aid
107
system ranging from primary to secondary and tertiary levels was established in
principle. This helped make progress in improving educational equity and the quality of
the labor force. The educational attainment of cohort over 15 increased to 8.5 years in
2007, close to the target of 9 years. The educational attainment of new entrants into the
labor force increased to 10 years.
Table 6.12 Key Indicators of Higher Education
Objectives
Capacity expansion and
system
development
(addressing access issue: too
rapid
expansion
for
undergraduates)
Keep
the
total/new
enrollment stable
Quality improvement
(addressing low quality)
1. Quality assurance system
2. Teaching
reform
&
learning
3. Adjustment of specialities,
subjects and school mapping
4. Developing high level
universities
and
key
specialties (211 & 985
Projects)
Indicators
Target-2010
2006
2007
30M
25M
NA
20M
1.3M
25%
1.1M`
22%
1.1M
23%
NA
NA
NA
NA
NA
NA
2006
NA
2007
150M
Total enrollment
Of which general HE
No. of undergraduates
No. of graduates
Gross enrollment rate
No. of world
universities
class
No. of
world
specialities
class
No. of high
research results
quality
To assess HEI
every 5 yrs; to
set
up
accreditation
system
3000 specialities
3000 curricula
500 model labs
100 best faculties
To set up and
disclose database
of teaching
To set up and
disclose
the
database
of
highly
needed
talents
5. Innovation capacity
6. Enhance the social science
Source: www.news.xinhuanet.com; MOE documents
Table 6.13 Inputs and Outputs
Objectives
Access to Free CE
Indicators
No. of beneficiary
Student aid to secondary
VE
Educational attainment
No. of beneficiary
Target-2010
Set up student
aid system for
poor students
90%
Years of cohort over 15
9
8.5
Years of new labor force
11
10
10%
NA
Ratio of employees over college
level to all labor force
2008
Realized
108
Source: Government documents of Two Conferences on March, 2008.
Educational Investment
6.129 The financing reform has promoted educational equity through supporting the
disadvantaged groups and supporting the priorities of development. In the past two years,
governments at all levels, notably the central government, have increased spending on
education and have improved the allocation of resources. The ratio of public spending on
education to GDP increased from 2.8 percent in 2005 to 3.0 percent in 2006. However, it
is below the regional average at 3.5%, and still away from the target of 4% in 2010. In
addition to CE, secondary VE and tertiary normal education have benefited from public
resources for student aid and subsidy, while the western region, rural areas and minority
nationality areas have received significant transfers.
6.130 At the same time, information on initiatives aimed at improving the efficiency and
effectiveness of educational spending are not available. These initiatives include: setting
up standards of school conditions and cost per student, improving the methods of
educational transfer program to motivate better performance, and setting up an M&E
system to improve the efficiency and effectiveness of public education financing.
Institutional reform
6.131 The reforms on curricula, test and performance assessment, and admission for
higher level schools have been significant in the past two years. In particular, pilots were
carried out for entrance examinations and admissions to higher education, and
standardized assessment for student performance in some selected cities.
6.132 In contrast, little progress has been made with the reform of school management,
in areas such as greater school autonomy, and personnel and pay management. Private
education is another area that deserves more attention and government action in the next
few years. In addition to directly providing education, the government could provide
supervision and procure educational services from private institutions so as to promote
and regulate the education and training market development.
Conclusions
(i) Key Results
6.133 Significant progress has been made in the priority areas of education development
identified by the 11th 5YP, namely compulsory and secondary education, while the
implementation of other tasks is on the right track. May new policies, regulations and
programs were launched. Strong political commitment and support for education by
society at large have reinforced the push for education development. The target of free
compulsory education nationwide will be achieved ahead of schedule, as well as the
targets for capacity expansion of VE and HE. Although it is difficult to assess the
progress made so far to improve the quality of the education system, it is clear that many
initiatives have been launched.
109
6.134 The provision of public education has also been made more equitable. A public
financing system has been established to meet the educational needs of disadvantaged
groups, and urban-rural and regional disparities were narrowed to some extent. These are
important milestones for Chinese education development.
(ii) Main challenges
6.135 Compared to capacity expansion and system development, regional development
and quality improvement are the weak parts of overall reform. The quality of education
needs to be improved in many areas; the quality of rural education continues to lag that in
urban areas; education expenditures are still low compared to the target and international
benchmarks; and institutional reforms need to be further explored.
6.136 A lack of policy research contributes to these weaknesses. Some key research
projects planned earlier on unit cost and benchmark of schooling, and some fundamental
work including setting up databases and updating teacher qualifications, have not yet
started. This kind of key policy research and fundamental work is essential to achieve
quality improvement. Other basic work, like updating curricula and teaching methods,
professional development for teachers and school management require long term efforts.
6.137 There is no systematic M&E system in place for all initiatives and tasks.
Therefore, there is a lack of adequate data to monitor and assess progress in many
programs and reforms. This will hinder policy adjustment at later stages of
implementation of the 5YP. The current educational statistics system can not provide
timely and validated data and some comparable indicators.
(iii) Recommendations
Policy-making in the 5YP
6.138 The 11th education 5YP addressed the important issues of access, equity and
quality which are highly relevant to the current situation. The 5YP sets the right policy
directions for human capital development, and comprehensive reforms and programs
have been launched. However, from the implementation perspective, it would be useful if
future Plans have a clear timetable, and if the monitoring and evaluation is more resultbased and evidence-based.
Implementation of the 5YP
6.139 It is necessary to put more effort and resources in policy research and in setting up
a monitoring and evaluation (M&E) system. This would allow for timely adjustment of
policy based on developments, and would provide a more solid base for future policy
making. A comparing with international benchmarks suggests that the educational
statistics system needs to shift emphasis from input to output indicators like completion
rates; and to focus on outcome and efficiency indicators such as indicators on youth
literacy rates and student performance.
110
6.140 During the rest of 11th 5YP period, the following areas need more attention and
effort:

As the 9-year compulsory education target has been achieved, early child
development (ECD) will be a key area for consolidating and improving the
quality of CE. A new law on ECD should have high priority in the next few
years.

Moving forward in the right direction, post secondary education could
usefully become more demand-driven. In areas including teaching & learning,
school administration, tests and evaluation, there is room for closer links with
the labor market, responding to the demand of local economic growth and
social development.

Public-private partnership needs to be strengthened, in particular in the areas
of VE and HE. This area needs not only legislative and regulatory work, but
also local active pilots and practices. It would be helpful to learn from best
practices at home and abroad.
111
7.
Building a Resource Efficient and Environmentally Friendly
Society
7.1
This chapter evaluates the progress to date towards meeting the 11th 5YP’s
objectives in building a resource efficient and environmentally friendly society.
Specifically, this chapter focuses on two of the nine major objectives of the 11th 5YP:
Objective 3: Significantly increase resource use efficiency in the area of water; and
Objective 6: Enhance sustainable development.
7.2
The evaluation identifies the main initiatives intended to support these objectives,
assesses the key results at the midterm of the plan period, discusses emerging issues from
the implementation of the 11th 5YP, and derives some preliminary conclusions and
lessons in relation to the consistency and guidance content of the 5YP. The assessment is
based on a review of the publicly available monitoring information (as of June 2008) and
structured interviews with selected officials and academic experts in China.
In broad alignment with the sectoral structure of the economy and the Government, this
chapter is organized as follows: The first section focuses on initiatives to reduce air,
water and solid waste pollution. The second section discusses efforts to reduce the
intensity of water use and protect water resources. The third section covers programs to
increase the forest cover and stop ecological/environmental deterioration. The foruth
section summarizes the cross-cutting conclusions and lessons that emerge.60
Reducing Air, Water and Solid Waste Pollution
(i) Background and Trends
7.3
China’s rapid economic growth over the past three decades has been accompanied
by major increases in environmental pollution that have reached alarming levels in many
areas. With regard to air pollution, China accounts for 13 of the world’s 20 most polluted
cities in terms of SO2 pollution, as shown in Figure 7.1. With respect to water pollution,
in 2007, of all 407 monitored river sections, 49.9 percent met the Grade I-II surface water
quality standard (that is, water that is safe for human consumption after treatment), 26.5
percent met Grade IV-V standards (that is, safe for industrial and irrigation use), and 23.6
percent failed to meet Grade V (that is, unsafe for any use). Overall, current COD
discharges from point sources reached 13.8 million tons in 2007, nearly 40 percent above
the ecological carrying capacity of China’s rivers of about 10 million tons/year, based on
their assigned environmental function zoning.
60
Farmland retention, increasing energy and mineral resource efficiency, and control of greenhouse gas
emissions are being covered in other chapters.
112
Figure 7.1 SO2 Emissions - 20 Most Polluted Cities
7.4
To guide national efforts for pollution control, the 9th, 10th and 11th 5YPs
selected total SO2 and COD discharges as the key indicators for air and water pollution
respectively. This is on the basis of their representativity, feasibility for monitoring, data
accessibility and availability, and practicality in measuring progress in implementation.
In spite of this attention, SO2 and COD emissions have continued to rise over the past ten
years, as shown in Figures 7.2 and 7.3. For the 11th 5YP the reduction of SO2 and COD
emissions by 10 percent has been identified as one of only eight “obligatory” targets, an
indication of their paramount importance for the entire sustainable development strategy.
7.5
China’s rapid growth and urbanization has also been associated with mounting
quantities of solid waste, from both industrial and residential sources. In recognition of
the need for national efforts to address this issue, the 11th 5YP identifies the
“comprehensive (re)utilization of industrial solid wastes” as the key indicator of progress
in this area. Recent trends of this indicator are shown in Figure 7.4.
(ii) Main Initiatives
7.6
The main initiatives undertaken to reduce air, water and solid waste pollution can
be broadly categorized as administrative measures, policy measures and investment
promotion:
113
Figure 7.2 Monitored COD Discharge in China
1600
Figure 7.3 SO2 Emission in China
SO2 (10,000 tons)
3000
COD (10,000 tons)
Total SO2
2500
1400
1200
Total COD
2000
Industry
1000
1500
800
Residential
600
1000
400
Rresidential
Industry
200
500
0
0
2002
2003
2004
2005
2006
2007
2002
Source: China’s authorities.
2003
2004
2005
2006
2007
Source: China’s authorities.
Administrative Measures:
7.7
The main instrument for
pursuing this strategy are the existing
pollution control regulations which
include: 1) the requirement for
environmental impact assessment and
approval
by
the
Ministry
of
Environment Protection (MEP) prior to
any investment; 2) pollution load
planning through total mass control, by
issuing discharge load permits to
polluters, levying discharge fees for
emissions exceeding the standard, and
mandatory clean-up within a given time
limit or compulsory closure.61
Figure 7.4 Comprehensive Utilization of
Industrial Solid Waste in China (%)
70
Utilization
60
50
40
30
20
10
0
1999
2001
2003
2005
2007
Source: China’s authorities.
7.8
These instruments are mainly aimed at: (i) restricting the approval of new
investments and expansion of existing plants in highly polluting and resources intensive
industries in regions and river basin that have not met the reduction targets in the past and
at present; and (ii) closing down or phasing out existing plants that cannot be made to
meet pollution standards within a certain time.62
61
Total mass control refers to the regulation of pollution discharges that takes the environmental function
and carrying capacity of the receiving water body into account. It is more comprehensive than the previous
concentration-based approach that focused on meeting discharge standards without considering the
environmental function of the receiving water body or airshed.
62
Every summer since 2005, MEP/SEPA, together with other agencies, has undertaken a major campaign
to inspect pollution discharging enterprises and sanction illegal discharges. In the 2007 campaign, 1162
enterprises were found to be in violation of relevant laws, of which 400 were closed down, 249 were
temporarily closed until the violation is corrected, and 102 were given a deadline for compliance. Source:
SEPA news release, 2007-09-03.
114
7.9
For the 11th 5YP period, the most important new initiative has been to strengthen
the enforcement of the above pollution control instruments by linking the pollution
monitoring indicator to the local government performance appraisal system. The central
government, MEP on behalf of the State Council, has signed “responsibility agreements”
with all provincial governments to make them accountable for meeting the pollution
reduction targets, i.e., they are “obligatory”. For localities that fail to meet the agreed
environmental targets, the head of the government and other responsible officials will not
be rewarded and promoted (even demoted in serious cases) even if performance in all
other aspects meet the criteria for reward and promotion.
7.10 A second major initiative for the 11th 5YP has been the promotion of the “circular
economy”. At the core of this concept is an effort to increase materials use efficiency
and minimize waste streams by: (i) reducing the use of raw material inputs (including
natural resources, water, energy), (ii) recycling these materials within the same industrial
process or plant, and (iii) recovering these materials from the waste stream and reusing
them in the same or other processes. The circular economy is mainly being pursued
through the gradual establishment of performance standards for recycling and reuse (such
as for raw materials, water intensity and solid waste utilization), and promotional
incentives for more resource efficient technologies and eco-industrial parks.
Policy measures:
7.11 The 11th 5YP period has witnessed the accelerated discussion, piloting and
implementation of economic instruments in environmental management. Advances are
being made in seven areas:

Fees and pricing: The existing pollution discharge fee system is being
strengthened, mainly by raising the fees (e.g. a prospective doubling of the
present 0.63 yuan/kg SO2 discharge fee) and improving fee collection. The
guaranteed feed-in tariff for electricity generated from renewable energy
sources and waste incineration has been fully implemented.

Ecological compensation: Rules for the compensation and limitation of
ecological damage from mining operations (including a ban on the felling of
forests) have been issued and implemented.

Green credit: MEP has issued a list of companies non-compliant with
environmental regulations and industries to major banks and the China
Banking Supervision Commission. The banks can limit their lending risk by
restricting loans to these companies and industries. In addition, all companies
listed in the stock market need prior audit by SEPA. Though still in pilot, 38
companies were audited in 2007 with 14 of them failing to pass.

Green trade policy: In 2007, China removed the VAT rebate on exports of
some pollution and resource intensive products, and imposed export taxes on
exports of products including some iron and steel products. MEP and the
115
Ministry of Commerce have been discussing the option of making the award
of export/import licenses contingent upon the relevant companies’ compliance
with environmental regulations.

Environmental liability insurance: Triggered by frequent pollution accidents
and eco-disasters in recent years, the insurance is mainly to compensate the
victims of damage.

Environmental taxes: MOF, the State Agency for Taxation (SAT) and MEP
have been studying options for environmental taxes.

Emissions trading: MEP has been piloting SO2 emission trading among power
plants and has plans to begin piloting COD emissions trading.
Investment promotion:
7.12 The 11th 5YP also provides for a substantial increase in funding for investments in
pollution control:

For COD reduction: The specific target is to increase the urban sewage
treatment rate from 52 percent in 2005 to 70 percent in 2010 by building and
operating more waste water treatment plants (WWTP) in urban areas.
Funding is mainly from the central government, subject to approval by the
NDRC, with counterpart funding from the local government.

For SO2 control: Mainly through desulphurization at the major polluters
particularly coal-fired power plants. By 2007, about 40 percent of total power
plant capacity had desulphurization installed and in operation.
(iii) Initial Results
7.13 As summarized on Table 7.1 the 2006 monitoring results were mixed, showing an
increase in the urban sewage treatment rates and industrial solid waste utilization,
combined with increases in SO2 and COD emissions. However, MEP’s most recent
Report on the Environment Status of China, indicates that total COD and SO2 emission
in 2007 have decreased by 3.1 percent and 4.7 percent respectively.63 On this basis, it
would appear that the long-standing upward trend of both SO2 and COD emissions has
finally been brought under control, which represents a major accomplishment.
7.14 The data on industrial solid waste utilization (Table 7.2) are difficult to interpret
since (i) in 2005, the figure for waste discharged exceeds that for waste generated, and
(ii) the 2006 figure for waste utilization already exceeds the target for 2010. If the latter
figure is correct, this suggests that the target may have been set too low.
63
2007 Report on the Environment Status in China, MEP, June 2008
116
Table 7.1 The 11th 5YP Targets and Progress Related to Pollution Reduction
National targets
Reduce total emission
Of major pollutants
By 10 percent (obligatory)
Utilization of
solid wastes
(indicative)
industrial
Breakdown to
sectoral
targets
Total
COD
(10,000 tn):
Industry:
Residential:
Urban sewage
treatment rate
(%)
Total
SO2
(10000t):
Industry:
Residential:
Cities
with
level II air
quality among
113 key cities
(%)
Comprehensive
utilization rate
1/ (%)
2005
actual
2006
actual
2007
actual
2010
target
Govt. agency in
charge
1414
555
860
1428
542
887
1383
1270
52
57
60
70
2549
2168
381
2589
2235
354
2468
2295
MEP
70
NA
NA
75
MEP
56
61.2
62.8
60
NDRC Dept.
resource cons.,
MEP
MEP
MEP, cities for
WWTPs
Sources: The 11th 5YP for environmental protection, MEP, 2006; 2007 Report on the Environment Status in China,
MEP, June 2008; 2006 Report on the Environmental Status in China, SEPA, June 2007; China Statistical Yearbook,
2007.
1/ In China, solid waste utilization includes off-site material recycling and reuse, and recovery of energy content
through e.g. incineration.
Table 7.2 Target and Progress Regarding Industrial Solid Wastes (billion tons)
A. Industrial wastes
generated
B. Industrial wastes
Discharged
C. Indus. wastes
Utilized
Utilization rate (=C/A)
(%)
2005
actual
1.35
2006
actual
1.52
2007
actual
1.76
1.65
1.30
1.20
0.75
0.93
1.11
56
61.2
62.8
2010
target
Remarks
In 2005, waste
discharged
exceeded
generated
60
2006 already
exceeded target
of 2010
Sources: 2007 Report on the Environment Status in China, MEP, June 2008, 2006 Report on the Environmental Status
in China, SEPA, June 2007.
(iv) Preliminary Assessment
Analysis of Results:
7.15 While it is still too early to determine the contribution of each of the various
initiatives to the reduction in pollution emissions, some experts believe that the biggest
117
impact might have been that of administrative measures on SO2 reduction.
following measures are reported to have had a major effect:
The

The requirement that all new power plants have desulphurization as
prerequisite for approval;

The compulsory closure of old power plants with capacity smaller than 200
MW.

The premium tariff for electricity generated from power plants that meet the
desulphurization requirement. The 0.015 RMB/kwh premium added to the
applicable feed-in tariff roughly covers the cost of desulphurization and
removes a disincentive to operate the desulphurization equipment which
existed in the past.
7.16 For water pollution, the COD that is monitored is predominantly from residential
sources, which account for about 60 percent of the total. While recent massive
investments in new urban waste water treatment plants WWTPs have succeeded in
reducing total emissions in 2007, the achievement of the 2010 pollution reduction targets
cannot be taken for granted. The achievement of the target to reduce pollution by 10
percent by 2010 from the 2005 baseline will actually require reductions of about 40
percent of the COD and SO2 emissions (from a hypothetical 2010 “business as usual”
scenario), once incremental emissions due to growth in economic activity are taken into
account.64 This is equivalent to COD reduction of around 5.6 million tons per year (TPY)
over 5 years. Major engineering projects are expected to bring about 4 million TPY of
COD reduction of which 3 million TPY will be through additional urban WWTP
capacity, and 1 million TPY by industry. The remaining 1.6 million TPY of COD is to be
eliminated through structural change and other means. This is expected to be difficult,
since—under China’s current growth pattern—the fastest growing industrial sectors are
also the most polluting ones, such as cement kilns, iron & steel, metal smelters,
chemicals, pulp & paper, and coal fired power plants.
Emerging Issues

Financial burden of local counterpart funding: End-of-pipe methods,
especially WWTPs, mainly funded from the central government, continue to
play a key role in cutting down COD emissions in China. On the other hand,
the most frequently cited obstacle for the lack of achievement of pollution
reduction targets in the 9th and 10th 5YP is the inadequacy of funding,
especially that of counterpart funding from the local governments for their
share of the WWTPs, sewerage collector networks and other investments
required to reduce COD discharges from urban sector. This points to the
Absent a major pollution control effort, i.e., in a “business as usual” scenario, China’s rapid economic
growth would be expected to increase pollution discharges by about 30% by 2010. Thus, to reduce total
discharges by 10% from the 2005 baseline will actually require reductions of about 40% from the “business
as usual” trend line for 2010.
64
118
desirability of increasing reliance on market-based approaches, such as the
creation of a regulatory framework that will enable wastewater treatment
plants and sewerage networks to not only recover operating and maintenance
costs, but also earn a rate of return that will help finance their expansion and
attract investors.

Administrative burden of the current administrative approach: While our
discussions with sectoral experts concluded that administrative measures and
investment in end-of-pipe technical solutions have been effective in reducing
pollution discharges, there is a concern about the sustainability of such
administrative approaches in the face of growing indications of fatigue among
local governments. It is quite possible that in the long run the ability of the
central government to pressure local governments on pollution control will
erode as power becomes more decentralized and other priorities emerge. A
more sustainable approach for the long term would be to establish a policy
framework that will provide the incentives needed for the economic and
industrial structure to evolve towards higher resource efficiency and lower
pollution, and create an environment that encourages production modes and
behavior that are more conducive to sustainable development. Such a
mechanism should nonetheless be based on regulations and standards,
strengthened law enforcement, reliable data monitoring and gathering, and
more active application of market-based economic instruments.

Gaps in the monitoring framework: Our limited research for this study
provided some indications of weaknesses in the monitoring framework. We
understand that great efforts are already under way to remedy the
inadequacies of data availability. There are, however, important gaps in the
monitoring framework that deserve to be mentioned:
(i) The COD monitoring only covers discharges from point sources,
and not from non-point pollution (NPP) which has been left out
due to technical difficulties in measuring, monitoring and
controlling. Since NPP, mostly from fertilizer and pesticides
runoff, as well as livestock waste, may account for between a
third to two thirds of total COD discharges, this is a major gap in
both the monitoring and the planning framework that needs to be
addressed if the notable achievement in pollution reduction are
not to be undermined. A similar gap occurs in relation to NPP
from vehicles, which accounts for a rapidly growing share of air
pollution.
(ii) The monitoring of air pollution has focused on SO2 discharges,
which was an appropriate target for the early stages, since it is
relative straightforward to monitor and control. However, recent
advances in our understanding of the impacts of pollution have
pointed to the much greater health and economic impacts of
119
particulate matter pollution, especially particles smaller that 2.5
microns in diameter (PM2.5) for which emissions are rapidly
growing in tandem with China’s vehicle fleet. For the long term,
therefore, particulate pollution or, even better, a comprehensive
indicator such as the share of cities meeting the official Level II
air quality standards, deserve greater attention for the monitoring
process and “responsibility agreements”.
Water Resources Efficiency and Safety
(i) Background and Trends
7.17 China’s per capita availability of natural freshwater resources was 2,151 m³ in
2005, which is expected to decline to 1,750 m³ as its population rises to a projected peak
of 1.6 billion by 2030. Based on standard definitions, Northern China is already a waterscarce region, and China as a whole will soon join the group of water-stressed countries.
Specifically, about 400 of China’s 660 cities are reportedly short of water; and 108 of
these cities, including mega-cities such as Beijing and Tianjin, are facing serious water
shortages. Given that agriculture and industry accounts for 65 percent and 24 percent of
China’s total water consumption, respectively, the 11th 5YP identifies irrigation water use
efficiency,, the productivity of water in the industrial sector, and the provision of safe
drinking water for the rural population as the key indicators to monitor the effectiveness
of the water conservation efforts. As shown in (Table 7.3), the productivity of water in
the industrial sector has been increasing rapidly over the past decade. Improving the
efficiency of irrigation water use has been more difficult.
Table 7.3 Water Use Per Unit of Industrial Value-Added
(M3 per RMB 10,000 in constant prices of 2000)
Year
2000
268
Source: China’s authorities.
2001
269.9
2002
240.8
2003
224.4
2004
205.8
2005
na
2006
178
(ii) Main Initiatives
7.18 The main initiatives undertaken to raise the efficiency of water use and extend
safe water supply in rural areas have been as follows:

Administrative measures to regulate water withdrawals: To control excessive
freshwater withdrawals, planning and zoning regulations are being revised to
ensure that industrial development is consistent with available water
resources. Since 2002, the issuance of a water use permit has become a
prerequisite for the approval of any new investment projects. The issuance of
these permits is subject to verification of availability of sustainable water
supplies, and the meeting of performance standards with regard to water use
efficiency and discharge of effluents.
120

Economic instruments: Regulations governing the water resource fee and
water prices are being revised to enable a better signaling of the economic
cost of water:
(i) The water resource fee is based on the cost of the raw water supply
infrastructure. While it has been gradually raised, it is only charged to
urban residential, commercial and industrial users, and agricultural users
that receive water from a public supply infrastructure such as a pipeline or
an irrigation canal. It is not charged to users that obtain water directly
from a surface or underground source.
(ii) Water tariffs for residential, commercial and industrial users have been
gradually raised since the early 1990s as a result of the implementation of
the policy that they fully reflect “cost recovery, reasonable profit, water
conservation and social equity.”

Investment promotion: Financial incentives have been provided to local
governments and enterprises to promote technologies that do not increase the
pressure on natural water resources, such as water recycling and seawater
desalination, and to repair and upgrade municipal water supply pipeline and
irrigation system to reduce leakage and losses. A major investment program
is aimed at providing safe water supply to 160 million rural inhabitants
through engineering projects such as repairing the reservoirs in danger,
digging deep wells, building and strengthening water supply pipelines.
(iii) Initial Results and Assessment
Analysis of Results:
7.19
Based on the limited available information on the key monitoring indicators,
shown on Table 7.4, the water-related targets are on track to be met. The
following factors have been identified as contributing to the success so far:

Policy reform and economic instruments have played pivotal role. The water
resources fee has been levied heavily on industries, providing a strong
incentive for water saving by making it financially attractive to invest in more
efficient equipment, and stimulating water recycling and reuse.

By contrast, virtually no fee has been charged for irrigation water users except
in a few areas, mostly in the plains, where irrigation water is supplied from
infrastructure (canals) that facilitate the collection of fees. This may explain
the slower progress in irrigation efficiency than that in industrial water use. A
World Bank irrigation water saving project in Hebei province has piloted a
scheme “to collect the fee based on water consumption, and to refund it based
121
on farm size”.65 This is reported to have been very effective in stimulating the
adoption of water saving techniques compared to the traditional approach of
charging the water fee based on farm size alone.

Institutional reforms to consolidate the management of water resources in the
local Water Affairs Bureaus have helped improve water management and
raise irrigation efficiency at the district level, although continued progress in
this area will be difficult unless some sort of water fee or price can be charged
to irrigation users.

Continued progress in enhancing the sustainability of water resource
management will be difficult to achieve because of growing water pollution
and the difficulties of coordinating pollution control and water resource
management activities, which are the responsibility of separate agencies.
Table 7.4 The 11th 5YP Targets and Progress Related to Water Resources
Item
Breakdown
Reduce
Industrial
water
consumption
Irrigation
efficiency
City
water
efficiency
2005
2006
2007
per unit of industrial
added value (m3/10000
yuan) (obligatory)
169m3
-7.7
percent
NA
2010
target
<115 m3
(-30% in
5 years )
Industry
water
recycling rate (%)
75
NA
NA
None
0.45
0.46
NA
0.50
20
NA
NA
<15%
Leakage from water
distribution pipelines
(%)
Govt. agency in
charge
NDRC
MWR, MOAgr.
Source: The water resources 11th 5-year plan, NDRC, MWR and MoC, May 2007; The 11th 5YP for building water
saving society, NDRC, MWR and Ministry of Construction (MoC), Dec. 2006; Interviews with officials of Ministry of
Water Resources (MWR); Data for 2007 will be released in late 2008.
Emerging Issues:

65
Financial burden: The timely availability of funding from both central and
local sources was cited as the most important challenge for meeting the 11th
5YP targets. The problem was most serious in relation to counterpart funding
from local governments in the poorer areas. The main exception is the
program to extend safe water supplies to rural areas, which benefited from
earmarked funding for the repair of unsafe small and mid-sized reservoirs.
The emergence of this issue points to the desirability of reducing dependence
on the central budget by continuing to raise water resource fees and water
按方收费 , 按亩补偿
122
prices so as to fully recover the cost of water supply.

Challenges in institutional coordination: Since water resource management
and water pollution control are the responsibility of different agencies, it is
difficult to develop and implement an integrated water resource management
strategy. Lack of coordination and cooperation between water resource
management and pollution control authorities has aggravated an already
serious water scarcity and pollution situation. Better ways need to be found to
improve coordination between the management of water flows and the control
of pollution discharges. This is necessary to optimize the management of
China’s scarce water resources and meet growing water demands of the
economy in a sustainable way.

Gaps in monitoring and planning: Efficiency and productivity indicators are
appropriate intermediate outcome indicators for improving water resource
management. For the long term, however, it would be more important to focus
on the sustainability with which the water resources are being managed. This
is a major concern, since excessive underground water withdrawals do not
appear to be covered under current monitoring arrangements. These
withdrawals are causing substantial damage to underground reservoirs, ground
subsidence in many urban areas, intrusion of seawater, and drying up of lakes
and wetlands, that is largely irreversible and totally unsustainable. Excessive
surface water withdrawals are also causing substantial losses of the ecological
value and environmental functions of rivers. On this basis, the excess of
water withdrawals above sustainable levels from both surface and
underground resources would be a more appropriate indicator.
Forestry and Eco-system Protection
(i) Background and Trends
7.20 Forests cover 163.5 million hectares in China, up from less than 115.3 million
hectares in the 1980s (see Figure 7.5). They provide China 40 percent of the country's
rural energy and about two-thirds of industrial wood consumption (around 225 million
cubic meters out of total utilization of around 310 million cubic meters). Although the
sector supplies about three percent of employment and four percent of GNP, the forest
resource base in China is small and isolated. Forest cover amounts to only 0.11 hectare
per capita, significantly below the world average of 0.77 hectare per capita. Wood
consumption per capita is only around 0.2 cubic meters per year, making China one of
the lowest per capita consumers of wood worldwide. While rapidly growing segments of
wood demand include pulp and paper, a large share of China’s rapidly growing wood
imports are accounted for by exports of wood content in manufacturing and packaging.
7.21 Like many countries, China experienced a long period of deforestation. Forest
cover declined to less than twelve percent and has now risen to over 18 percent.
Figure 7.5 Forest Coverage in China
123
(ii) Main Initiatives
200
7.22 The main target for forestry in
the 11th 5YP is to increase forest
coverage from 18 percent to 20 percent
and reverse land degradation and
desertification. Three types of measures
have been undertaken in support of
such goals: key national investment
programs, policy reforms and societal
participation.
180
160
Percentage
(%)
140
120
100
80
60
40
20
0
1975
Investment programs:
1980
1985
1990
1995
2000
Source: China’s authorities.
7.23
The 11th 5YP period has witnessed continuing increases in funding for the key
investment programs to restore and increase China’s forest cover. Since the main focus
is to protect and enhance forest ecological functions, and in line with the public goods
nature of these functions, the main source of funding has been the central government,
which plans to allocate about RMB 700 billion for these programs over the period of
2000-2010, with counterpart funding required from local governments:

Establishment and improvement of natural reserves and natural habitats. A
major focus is the protection of drinking water source areas, including river
sources, water catchments and reservoir ecosystems, and wetlands.

Forestry industry development. With the aim to boost production of fast
growing trees, bamboos and bushes to provide raw materials for timber
industry, paper industry as well as fuel wood and bio-energy development.

Control of dust sources surrounding Beijing and Tianjin. Mainly through
afforestation and reforestation in 75 counties to the north of these two mega
cities in order to curb the sand storms affecting the capital area.

Building protective forest belts. Planting trees, bushes and grass cover along
the northern frontier of encroaching deserts (the “Three-North”: northeast,
mid-north and northwest of China), along the Yangzi river and the coastline.

Protection of natural forests through forest closure, logging ban and
reforestation. This program doesn’t contribute significantly to forest coverage
target, as the amount of planting involved is relatively small (total 1.9 million
ha planned).
Conversion of marginal farmland to forest. This program focused on
farmland on slopes steeper than 25º and severely eroded and degraded
farmland. In total 8.7 million ha of farmland had been converted by the time
this program was basically completed in 2005.

124
Policy reform and economic instruments:

Forest tenure reform is at the center of sectoral policy reform and is regarded
as the key to mobilize resources for forestation, and more importantly, to
sustain the result already accomplished. The core of this reform is to clarify
responsibility and benefit sharing of forestation among the state, community
and farmers;

Forest eco-benefit compensation has been piloted since 2004. The annual
compensation for maintaining forests was 5 yuan/mu, soon deemed too low
to provide enough incentive. The compensation was raised in 2006 (to 20
yuan/mu in some southern provinces like Guangdong and Zhejiang) but this
has not yet been implemented due to a lack of funding.

Social participation in reforestation: China has had the tradition of voluntary
tree planting for decades, which was codified by law in 1980s. Civil society is
encouraged to plant trees and provided with facilities each year. Government
agencies at different level in different sectors are also required to plant trees..
For example, transportation authorities need to plant a protective tree belt
along railway lines and highways.
(iii) Initial Results and Assessment
7.24 Both officials and experts believed that, provided timely funding from both
central and local governments is available, China is on track to meet the forest cover
target. However the 2008 winter storm disaster in the south damaged a forest area
equivalent to nearly 10 percent of the country’s forest cover. Experts are still in the
process of evaluating the damage and plans for recovery so as to also determine whether
the 20 percent target needs to be adjusted due to this force majeure event.
Emerging Issues:

Financial burden: Availability of funding was cited as one of the major
obstacles to achieving the targets of increasing the forest cover and
controlling land degradation and desertification. The risk of a shortfall was
greatest where land degradation and desertification are most prevalent, since
they are the poorest regions of China, with a shortage of both counterpart
funding and capacity for the implementation of the integrated agriculture,
water resource management, forestry and livelihood development programs
needed to combat degradation and desertification.

Problems with monoculture and seedling quality: The huge extent of the 2008
winter storm damage exposed the quality problem of China’s forestation
effort. Worst hit were the young and middle aged trees which cover about 70
percent of reforested areas. Due to poor seedling quality and inadequate postplanting maintenance, the trees had grown more slowly and were thus weaker
125
and less resilient than if standards had been maintained. The extensive
damage suffered by bamboo forests also illustrates the risks associated with
monoculture plantations, since mixed forests could have been expected to
better withstand the severity of snow and ice damage.

Lack of post-planting maintenance and funding: If evergreen and deciduous
species are planted together, deciduous species would have difficulty
surviving. Therefore it is necessary to plant them later in conjunction with
selective felling of conifers, which the forest farms and local farmers often
cannot afford. Government funding and subsidies have been channeled only
to planting, with very little funding of ex-ante and ex-post activities that are
crucial for survival rate and forest quality. In addition, a low level of funding
for R&D has resulted in poor quality of breeding and seedlings.

Need for quality indicators: The use of a quantitative indicator for the
11th5YP and other plans appears to have contributed to the overemphasis of
coverage at the expense of forest quality, as illustrated in the following
examples:
(i) In the arid and degraded areas where it would be more appropriate to plant
a combination of trees, shrubs and grasses of indigenous or drought
resistant species, local officials tend to plant fast growing species like
poplar for the sake of easier and more tangible achievement within their
term in office. This resulted in earlier plantations in the Three-North forest
belt dominated by water consuming poplar, which has lowered the
groundwater table and out-competed the native vegetation, weakening the
resilience of an already fragile eco-system;
(ii) Digging a small hole to plant a tree has better survival rate, can save cost
and time, and is more desirable for eco-system protection than clearing the
whole land of its original vegetation. But sometimes local forestry teams
choose the latter because its result is more visible and straightforward to
the eyes of senior officials and laymen politicians in legislature who
decide on funding.
(iii) Special issues and technical problems in restoring vegetation cover for
degraded land in the arid and semi-arid northern regions remain
unresolved, in particular regarding the choice of appropriate species and
ex-post maintenance.
7.25 A 2003 strategic study of sustainable forest ecology development in China,
organized by the State Council and involving over 300 experts, concluded that
considering population growth and sustainable economic development within the ecocapacity of China’s environment, forest coverage has to reach 23 percent by 2020 and 26
percent by 2050. For 2010, a target of 20 percent was deemed as both necessary and
feasible. Nonetheless, given that both ecological and economic functions of forests
126
depend at least as much on its quality as on its coverage, improving forest quality
deserves more attention and effort, especially for the planted forests since they constitute
majority of coverage increase in China.
Conclusions and Lessons
(i) Status of implementation
7.26 Preliminary indications are that, based on the publicly available information,
China has made substantial progress towards the construction of a resource efficient and
environmentally friendly society. Over the past two years, the unrelenting increase in air
and water pollution discharges over the past decade appears to have been finally reversed.
The comprehensive utilization rate of industrial solid waste has been raised. The
efficiency of water use in irrigation, and the industrial value added per unit of water
consumed, have both increased. The forest cover has steadily expanded over the past
decade, although it is possible that the recent winter storm disaster may have set back the
timetable for reaching the 20 percent coverage target. These are major accomplishments
which inspire confidence that, provided the efforts are continued, the major relevant
targets of the 11th 5YP can be achieved.
7.27 Our assessment of the results, based on a review of the available information and
informal discussions with selected government officials and experts, have yielded a few
useful conclusions and lessons for improving the guidance content of the 11th 5Y plan,
especially in relation to the quality and sustainability of development.
(ii) Enhancing the Quality of Development
7.28 It is evident that the 11th 5YP’s use of a small number of key monitoring
indicators, and especially the identification of eight “obligatory” indicators and their
integration into the appraisal system for local governments, has been a major factor in the
remarkable progress to date towards the achievement of the major targets. It appears,
however, that the high visibility and priority given to these indicators has led to
inadequate attention to qualitative aspects that can worsen the existing tendency to pursue
quantity rather than quality. If unchecked, such tendency may undermine the
government’s endeavor in steering the development toward ‘good and (then) fast’.
7.29 Pollution in China has well exceeded the carrying-capacity of its water and air. A
reduction of 10% by 2010 is far from adequate but is an important first step.
The reduction of SO2 discharge, for example, will make an important contribution
towards the reduction of air pollution. From the perspective of improving air quality for
the long term, however, a more comprehensive indicator, such as the MEP’s Class II
National Ambient Air Quality Standard, would be more desirable. The use of such a
more comprehensive indicator would put more attention to the control of particulate
matter, which has a greater impact on public health than SO2 and is becoming the top air
pollutant in most major cities. It would also draw more attention to pollution sources
outside of the power and industrial sector, such as transport and urban construction that
127
are not covered by the SO2 indicator.
7.30 The reduction of COD discharge is a major step towards the improvement of
ambient water quality. But the focus on urban and industrial sources may have
contributed to the lack of attention to other major sources of water pollution in China,
namely non-point pollutions from agriculture that, while more difficult to measure, are
essential to achieve the desired objective. In line with the objective of enhancing
environmental sustainability, a more relevant indicator of the desired impact for the long
term would be the extent of compliance with applicable water quality standards, in line
with the MEP’s applicable environmental water zoning regulations.
7.31 Water Sustainability: Increasing the efficiency of irrigation water use and of the
productivity of industrial water use are essential for making water resource management
more sustainable. But a more direct indicator of sustainability would simply be the
extent to which freshwater withdrawals exceed sustainable limits for both surface and
underground water resources. The inclusion of underground withdrawals into the
monitoring framework is particularly important as that is where unsustainable practices
are most serious and irreversible.
7.32 Forest Quality: Both the ecological and economic functions of the forests will
depend at least as much on increasing its quality as on increasing its coverage. Although
indicators on forest quality have been included in the sector 11th 5-year plan for forestry,
it would better serve the objective of enhancing the sustainability of development to
highlight the importance of quality also in the national 5-year plan in future.
7.33 Institutional Cooperation: The adoption of more quality-based comprehensive
indicators of final impacts should also provide an incentive for the development of
integrated approaches to enhancing sustainable development and improve cooperation
between relevant agencies. Thus, for example, the improvement of water resource
quality will be most efficiently achieved through the integrated management of water
resource management and pollution control, which are the responsibility of separate
agencies that need to work together better. Similarly, a greater focus on the ecological
and environmental quality of forests should serve to foster better integration in efforts to
combat land degradation and desertification with other agricultural and livelihood
development agencies.
7.34 Lesson: The 11th 5YP’s use of indicators has been effective in focusing the
attention of government officials at all levels on a few key outcomes, thus increasing the
likelihood that they will be achieved. Indications are, however, that the high visibility and
priority given to these quantitative outcomes has led to inadequate attention being given
to some qualitative aspects that are essential for enhancing the environmental
sustainability of development, and that cannot be neglected in the long term. On this
basis, it is recommended that the key indicators used for monitoring the implementation
of China’s planning be selected to focus on the desired qualitative impacts of sustainable
development, rather than on intermediate outcomes.
128
(iii) Enhancing the Sustainability of Development
7.35 Our preliminary assessment also leads to the impression that the current approach
for increasing resource efficiency and enhancing sustainable development has relied
heavily on administrative measures and centrally funded investments. Such a
combination has the advantage of producing quick effects, evident in the progress
achieved so far, but leads to concerns about the financial and administrative burden on
the government, and the efficiency with which the objectives are being pursued, which
could affect the long term sustainability of development.
7.36 Financial burden: result-oriented versus input oriented: The lack of funding
remains a key obstacle. On the other hand, government officials are still more concerned
about finishing projects on schedule than whether the public funds spent in these projects
really achieve the expected results, since their performance is still mainly judged by
inputs accomplished, rather than result and effectiveness. One of the reasons is that it is
much easier to measure inputs than to measure its results. To tackle this issue, the World
Bank has worked with the NDRC to develop a results monitoring and evaluation system.
However, its institutionalization and eventual adoption by the government in routine
operation remains uncertain. More result-oriented management would be important for
China to ensure that its scarce financial resources are effectively utilized
7.37 Efficiency and Balance of Investments: There are indications that that the
current heavy reliance on public funding has led to certain imbalances that affect the
overall efficiency of the investment program. Thus, for example, investments in
pollution control have concentrated on end-of-pipe solutions rather than moving to less
polluting technologies.
Irrigation water savings investments have focused on
infrastructure improvements rather than enhancing demand management. Forestry
investments have focused more on increasing forest cover than improving ecological
functions, and on planting trees, rather than pre- and post-planting care and maintenance.
Such lack of attention to overall efficiency tends to increase the financial burden on the
government and undermine the long term sustainability of the results.
7.38 Administrative Burden: The linkage between the achievement of key indicators
and the performance appraisal system for local governments has undoubtedly contributed
to the generally positive results achieved so far, but concerns have been expressed about
the sustainability of such an approach in the face of growing fatigue among local
governments. In the long term, the ability of the central government to influence local
governments by administrative means may weaken as the economy and society become
more complex and other priorities emerge. This points to the advisability of devoting
more attention to the creation of a policy and institutional framework that will continue to
encourage resource efficient and environmentally friendly production modes and
behaviors even as the government’s involvement becomes smaller and it shifts its focus
to other areas.
7.39 Consistency of Development Objectives: Air and water pollution in China
already exceeds applicable standards in most areas. Freshwater withdrawals already
129
exceed sustainable levels of both surface and underground resources. The forest cover
remains far below the level needed to restore its environmental and ecological functions,
even though a massive reforestation effort has been under way for nearly a decade. It is
thus essential that the 11th 5YP targets be achieved, maintained and built upon to ensure
that the country’s development can become more sustainable in the future. There are
tensions, however, between these objectives and the current concentration of industrial
growth in resource intensive, highly polluting sectors such as steel and other metals,
cement, plastics, pulp & paper, and coal-fired power plants. These tension needs to be
addressed through rebalancing of the pattern of growth towards growth that is less
industry-led and less capital-intensive (Chapters 1 and 2).
7.40 Lesson: The 11th 5YP’s heavy reliance on administrative measures and centrally
funded investments has the advantage of producing quick results, but has elicited
concerns about the financial and administrative burden on the government, and the
efficiency with which the objectives are being pursued, which could affect the long term
sustainability of development. Lessons from the experience in many countries suggests
that more efficient and sustainable results can be achieved with better balance between
administrative and market incentives, which can also generate incremental private sector
financing. Going forward, it is recommended that greater attention be given to the
development and implementation of market-based instruments for environmental and
natural resource management, supported by the strengthened enforcement of applicable
regulations and standards.
130
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132
Annex 1: Overview of Structure of the 11th 5YP
1.
The 11th 5YP has an elaborate structure, with 6 guiding principles, 6 overall
orientations, 9 major objectives, and 15 main tasks and strategic priorities.
2.
Chapter 1 of the 11th 5YP lays out the guiding principles, overall orientation and
objectives. It identifies six guiding principles (p 4): 66,67
3.

Maintain steady and rapid economic development: relying more on domestic
demand and consumption, and less on investment, keeping macro balance;

Speed up the transformation of economic growth pattern: to a more
rebalanced and sustainable one, using fewer resources and protecting the
environment;

Improve the capability for independent innovation: using science and
education;

Promote coordinated development between urban and rural regions: solving
“3 rural issues” (agriculture, farmers, and the country side), and promote the
new socialist countryside and sound urbanization;

Build harmonious society: being people-centered, resolve practical issues
affecting people, coordinate development economy and society, promote
social equity and shared growth, promote democratic and legal system
construction, maintain social stability;

Deepen reform and opening up to the outside world: reform in direction of
the socialist market economy, improve modern enterprise system and property
right system, have prices be determined by markets and resource scarcity,
increase resource allocation efficiency, “practically change government
functions” and improve macro control, continue opening up to the outside
world.
In accordance with these guiding principles it lays down six policy orientations:

Expand domestic demand, especially consumer demand, change composition
of demand from relying mainly on investment and exports to more balance;
66
Page numbers are as in the English translation.
67
The World Bank has not been asked to evaluate the tasks in italics by NDRC.
133

Optimize industrial structure, shift drivers from industry and quantities to the
3 sectors (including agriculture and services) and structural upgrading;

Save resources and protect environment: based on a change in the pattern of
growth, move sources of growth from “resource investment” to efficiency
increase;
Enhance the capability of independent innovation: shift drivers of growth
from “fund and physical investment” to science, technological progress, and
human capital;


Deepen reform and opening up: move away from administrative intervention
towards market driven development with macro control and adjustment by the
state;

Be people-centered: emphasize improving people’s living standards, shift
emphasis from increasing material wealth to promoting comprehensive human
development and coordinated development of economy and society.
4.
Following on 6 guiding principles and 6 policy orientations, the 5YP (p 6)
describes nine major objectives in order to achieve a Xiao Kang society, supported by
22 quantitative benchmarks (Table 1.2 of the 5YP). 68
68

Stable operation of macro economy, with robust growth of GDP and urban
employment, and moderate inflation and basically balanced external trade;

Optimization and upgrading of industrial structure, rationalize industry and
enterprise organization structure, increase share of the service sector, increase
spending on R&D {, in order to enhance independent innovation}, develop a
group of “superior” companies with IPRs, well know brands, and strong
international competitiveness;

Significant increase of resource utilization efficiency, reduce energy and
water intensity, increase water available for irrigation, and {use
comprehensively} industrial solid waste;

Coordinated urban and rural development, building the new socialist country
side, increase urbanization, prevent increase in urban-rural inequality in
incomes, living standards, and public services;
The interpretation in the IDF report (p 41) is similar but a bit different.
134

Improved basic public services, ensuring 9 years education, have a sound
public health and medical services system, increase social security coverage,
including old-age insurance and the rural cooperative medical system,
decrease poverty;

Enhanced sustainable development, contain population, keep up farmland
retention, safeguard water, increase energy and mineral resources, stop
ecological/environmental deterioration, reduce emission major pollutants,
increase forest coverage, and control greenhouse gas emission;

Enhanced market economy, reforming administrative management, SOEs,
finance and taxation, banking, science and technology, education, culture and
health, coordinate opening up to the outside world and domestic development,
and open up further;

Improved living standards, increasing per capital disposable incomes and the
quality of life, and improving conditions in housing, traffic, education,
culture, health, and the environment;

Progress with democratic legality and spiritual civilization building,
progress with legal reform, ideology and morality, and the harmonious
society.
5.
In Chapter 13 of the Plan, around 15 main tasks and strategic priorities are
outlined. These are not yet concrete policies.

1. Building up new socialist country side (p 9): develop modern agriculture
(higher productivity, agricultural structural adjustment, enhance agricultural
service system, improve markets), increase peasants’ income (agricultural
income, non-agricultural income, fiscal impact), improve rural conditions
(infrastructure, rural environmental protection, rural health service, rural
social security), train new type peasants (education, skill training, culture),
increase agricultural and rural investment, deepen rural reform;

2. Optimization of industrial structure (p 16) (here, seems to be filled in as
“how to improve competitiveness and upgrade”): accelerate development
high-tech industry (electronic, information, and manufacturing industries; bio
industry; air space industry); equipment manufacturing industry (major
technical equipment, automobile, shipbuilding); optimize energy industry,
with conservation, with coal as basis, build stable, economic, clean and safe
energy (coal, electric power, petroleum and gas, renewable); adjust raw
material industrial structure and distribution (optimize metal industry, adjust
distribution chemical industry); light and textile industry; informatization;
135
69

3. Development of service sector: producer-oriented service industry
{“deepen professionalized work division”, reduce social transaction costs and
improve resource allocation efficiency} (traffic transport industry, modern
material circulation industry, finance, information services, commercial
services); enrich consumption service industry (commercial and trade, real
estate, tourism, town public utility, community service, sports); policy
guidance (p 29): break monopolies and entry barriers, separate profit oriented
organizations from non-profit ones, large cities should favor services industry;

4. Coordinated regional development (including urbanization) (p 30):
overall regional development strategy (western development, old industrial
bases such as NE, central region, east takes lead in development, old
revolutionary bases, minority areas, border areas), formation of principle
function area (optimized development zone, key development zone, restricted
development zone, classified management regional policy); sound
urbanization (guide population urbanization by classes, rational urbanization
spatial layout, urban planning);

5. Building resources-saving and environment-friendly society (p38):
recycle economy (conserve energy, save water, save land use, save materials,
strengthen comprehensive resource utilization); strengthen policy measures to
promote conservation (standards, specification, power demand side
management, implement finance and taxation, price and investment policies
conducive to resource conservation, replace petroleum); protect and remedy
natural ecology {from treatment to prevention}; strengthen environmental
protection (water pollution prevention, emission, solid waste, environment
protection); strengthen resource management (water, land, mineral); ocean
and climatic resources; 69

6. Strategies of science, education and talents to revitalize the nation (p
46): scientific and technological innovation (independent innovation,
technological innovation, increase protection IPR, reform scientific and
technological system); education development (compulsory education,
vocational education, higher education, increase educational investment,
reform management); human resource development (high quality talent team,
innovate talent work mechanism)

7. Deepen reform and opening up (p52): administration system (change
government functions, improve government decision making, reform
investment system); improve basic economic system (SOE reform, SOE asset
supervision, reform monopoly industries); reform fiscal taxation system
(fiscal, taxation); reform monetary system (reform financial enterprises, direct
No obvious role for prices here.
136
financing, improve financial regulation and control, financial supervision);
improve modern market system (national market, price formation of resources
and utilities, standardize market order); win-win opening (optimize export
structure, actively enlarge imports, develop service trade, improve fair trade
policy); improve quality of FDI ; go-out; international regional economic
cooperation;
70

8. Promote socialist harmonious society (p61): population work (birth
control, structure births, respond to population aging, women and children’s
rights, handicapped); improve living standards (expand employment,
strengthen income distribution, improve social security system, strengthen
poverty relieve work, expand consumption); improve people’s health (public
health and medical service system, disease prevention and treatment, Chinese
medicine, deepen health care reform); public safety (disaster, work safety,
food safety, national safety and social stability); social management (grass
roots organizations, NGO’s, deal with contradictions among people);

9. Strengthen socialist democratic and political construction (p 69):

10. Strengthen the building of socialist culture (p 70): strengthen socialist
cultural construction (ideological and ethical progress, enrich people’s cultural
life, reform cultural system)

11. Strengthen national defense and army building (p 72)

12. Establish and complete planning and independent mechanism (p 74):
implementation mechanisms for guidance different areas; adjust and improve
economic policy making; improve planning and management system. 70
Page 75: fiscal, change composition of expenditures, tax policies.
137
Annex 2: Monitoring and Evaluation Framework
1.
Based on the experience of the mid-term review of the 10th 5YP, the NDRC
decided to establish a methodology and institutionalize arrangements for future M&E
plans. A project financed by a World Bank (WB) Institutional Development Fund (IDF)
grant to the NDRC supported the development of a 3 tier M&E framework. Annex 1.1
briefly discusses the framework.
2.
The framework starts from the overall goals and “guiding principles” of the
plan—the 5 balances. The 5 balances and a set of 15 goals (p 42) are the agreed
principles for the M&E framework.
3.
A three-tiered monitoring indicator framework was developed.

The first tier is the matrix in the 11th 5YP which contains 22 major indicators
(14 “benchmarks” and 8 “targets”; with the government holding itself
responsible for the targets. “The central government will guarantee the
meeting of these targets by appropriately allocating the public resources and
effectively using the administrative means.” (11th 5YP)

The second tier contains 51 indicators, including the 22 indicators in the first
tier, organized around the principles of the 5 balances. This is considered the
core of the monitoring framework.

The third tier contains 99 indicators, including all tier two ones and all the
indicators mentioned in the text of the 11th five year plan. Work on the midterm review could “pick and choose”.
4.
The IDF work also developed a suggested set of input indicators and activities
(table 4, p 68), and did initial information gathering for several input indicators. Analysis
of the input information will be useful for the mid-term evaluation.
138
Annex 3: Progress in Implementing the 11th 5YP: Summary Results for 45 Tasks of Chapter 10, 11
and 13 1
No.
To-do tasks as stated in the
5YP
Evidence of progress in implementation
Chapter 10: Accelerating the Development of Hi-tech Industries
1
Accelerate the development
The ratio of value added of officially defined “hi-tech” industries
of hi-tech industries
to GDP rose by 0.35 percentage points from 2005 to 2006 2.
Year
%
1995
1.78
2000
2.78
2004
3.97
2005
4.42
2006
4.77
2
Develop core sectors such as
integrated circus, software
and new components and
parts with great force
Growth Rates of Integrated Circus and Software Sectors3 (%, year
on year)
2006
2007
Output of integrated circus
26.3
22.6
Business revenue of softwares
22.9
21
Relevant government
actions taken
Remarks and
Progress
Impression
(S=satisfactory;
Q=questionable”
A range of policies
supporting hi-tech industries
have been implemented,
including those shown
below.
The 11th 5YP for
Hi-Tech Industries
expects a 10% ratio
of hi-tech industrial
value added to
GDP. It needs to be
raised by 5.23
points in four
years, which seems
extraordinary in
view of the less
than 2 points
increase during
2000-05.
Impression: Q
Impression: S.
The government has
designated the first batch of
integrated circus producers
to receive special
government in the form of
favorable policies,
This annex draws on Yang Jianlong and others, “Evaluation of the Progress of 11 th FYP in Optimization and Upgrading of Industrial Structure”,
background report prepared for the World Bank. March 2007.
2
《中国高新技术产业统计年鉴 2007》，表 1－1，1－2。
3
http://www.mii.gov.cn/art/2007/02/27/art_941_28904.html; http://www.mii.gov.cn/art/2007/02/27/art_941_28904.html
1
139
following a regulation of
NDRC in 20054
3
Build industrial bases of
software, micro-electronics
and optical electronics
The total revenue of the nine national IT industry bases in 2007
represents a 56% increase over 2004. There are 40 national
information industrial parks, which account for over one quarter of
the national output of the industry in 20075.
Impression: S.
4
Make breakthrough in highpowered computer (HPC)
technology at the scale of
million billion times per
second, and industrialize
HPC at the scale of thousand
billion times per second
Build demonstration projects
for next generation of
internet and achieve
industrialization of key
technology, equipment and
software
China S&T University produced KD-50-I HPC on Dec. 27, 2007,
which is the first HPC at the scale of thousand billion times per
second produced in China equipped with a domestically produced
chip (Dragon Chip 2F).
Impression: S
Develop bio-pharmaceuticals
as a key priority
Develop bio-energy as a key
priority
Total output of bio- pharmaceuticals grew by 14.6% in 2006 and
23.4% in the first ten months of 20077.
Following four fuel ethanol devices at the scale of 300,000 tons
that started production in the 10th 5YP period, COFCO’s device of
fuel ethanol based on cassava (木薯) started production in Hepu
5
6
7
4
A series of projects have completed and passed NDRC appraisal.
Breakthrough has been achieved in IPv4/IPv6 and CNG1
technologies.
NDRC6 “organized the
implementation” by
approving proposals of
demonstration projects,
application experiment
projects and
industrialization projects,
and providing financial
support.
NDRC approved an 11th
5YP for bio-technology
industry. China
Development Bank (CDB)
joined NDRC8 in June 2007
Impression: S
Impression: S
Impression: S
http://www.gdgnsme.com/news_view.asp?newsid=39
http://www.mii.gov.cn/art/2008/02/19/art_27_36200.html
6
http://www.sdpc.gov.cn/gzdt/t20051018_45555.htm;
http://www.ndrc.gov.cn/zdxm/t20051018_45564.htm;
http://www.ndrc.gov.cn/xmsphz/t20060927_125916.htm;
http://www.sdpc.gov.cn/zdxm/t20051227_54697.htm;
http://www.sdpc.gov.cn/gjscy/xxcy2/t20060217_59838.htm; http://www.agri.gov.cn/zcfg/bmgz/t20080222_977034.htm.
7
《中国科技投资》，2008 年第 1 期.
8
http://www.law-star.com/cac/40010999.htm
5
140
Industrial Park of Guangxi at end of 2007, with an annual capacity
of 200,000 tons, which is the first non-grain based device. The
second phase of the project is under construction. Sweet sorghum (
甜高粱)-based ethanol technology has been in the stage of midterm test in Guilin (Guangxi) and Wuyuan (Inner Mongolia).9
8
Develop new sub-line
airplanes
Develop large airplane
9
10
By Oct. 30, 2006, there had been 71 orders for China’s ARJ21-700
10
new sub-line airplane.
The State Council approved the creation of China’s large
passenger airplane company on Feb. 26, 2007 to launch the special
program of large airplane development.
Total output of China’s applied satellite navigation was RMB2
11
billion in 2002, over RMB10 billion in 2005 , before jumping up
12
to over RMB20 billion in 2006 .
Promote the transition of
astronautics industry from a
mode of experimentation and
application to one of
business service
Chapter 11: Revitalizing the Equipment Manufacturing Industries
12
Raise the market share of
The market share of automobiles with self-owned brand stood at
automobiles with self-owned 25% in 2005, and increased only to 26% in 2007 13.
brands
13
Bring into being some
enterprises that have
to provide financial support
to bio-technology firms.
Proposals are to be screened
firstly local DRCs, reviewed
by NDRC, which will then
recommend to CDB for
final decision.
The largest three producers, i.e., Shanghai, First, Dongfeng, saw
their total production exceeding one million in 2006 and 2007.
Impression: S
Impression: S
Impression: S
NDRC disqualified 116
automobile producers in
March 200614.
The target set by
11th 5YP for
automobile
industry is over
50%. This ratio
needs to rise by 24
points in the
coming three years,
while it rose only 1
point from 200507. Impression: Q
There can be
conflict between
数据来源：中国报告大厅，http://www.chinabgao.com/freereports/19455.html
http://sh.eastday.com/qtmt/20071221/u1a385223.html
11 数据来源：新浪网，http://tech.sina.com.cn/it/2005-04-30/0602598826.shtml
12 数据来源：陕西中小在线，http://news.smeshx.gov.cn/i%5C178379388.htm
13汽车工业年鉴 2007，中国汽车工业“十一五”发展规划。其中 2007 年数据来自中国汽车工业协会 http://www.auto-stats.org.cn/ReadArticle.asp?NewsID=5018.
14 http://info.feno.cn/2006/110302/c000001734.shtml
9
10
141
production capacity of over
one million vehicles by
guiding enterprises to merge
and reorganize in
competition
Shanghai Automobile took over Nanjing Automobile at end of
200715, which will help it to increase its output to 2 million by
2010. However, the degree of concentration in the whole sector
remains largely unchanged in 2006-07, as shown below16 (%).
2005
2006
2007
C3
46.09
46.44
47.07
C10
83.95
84.16
83.41
14
Strengthen capacity of
complementary vessel
equipment production
Ratio of domestically made complementary vessel equipment
installed in vessel (本土船用设备装船率) increased to 49.5% in
2006 from 46.1% in 200517.
15
Optimize three major
categories of vessel products:
bulk carrier, oil tank and
cargo carrier
16
Build shipbuilding bases in
Bohai circle, Yangzi river
delta and Pearl river delta.
Received orders of Chinese producers accounted for 28% (bulk
carriers), 30% (oil tanks) and 21% (cargo carriers) of world
market total in 200619. Total shipbuilding production in 2007
accounted for 23% of world total, up by 4 percentage points. Total
received order of shipbuilding in 2007 rose by 132% over 2006 20.
Status of shipbuilding bases construciton
Shanghai Changxing
Island
Phase I started production
15
China Business News, Dec. 27, 2007.
website
17船舶工业中长期发展规划（2006～2015 年）source of 2006 data?
18 http://www.costind.gov.cn/n435777/n569696/n569708/114666.html。
19 http://www.xinhuanet.com/chinanews/2007-11/03/content_11564877.htm.
20 http://china.shipe.cn/Info/139668/Index.shtml.
16中国汽车工业协会.
Commission of Science and
Technology Industry for
National Defense
(COSTIND) released a draft
regulation for public
consultation on Aug. 24,
2007, which is intended to
introduce production
licenses for shipbuilding18.
this and the
previous targets, as
self-owned brands
are from small
producers (Qirui,
Jili), which are
unlikely to
overtake the big
three in the near
future. Impression:
Q
The Medium and
Long-term
Program for
Shipbuilding
Industry sets a
target of over 60%
for this ratio. It was
still 10 points away
from the target in
2006, although the
2006 ratio of 3.4
points higher than
2005. Impression:
Q
Impression: S
Impression: S
142
Testing production started at end
of 2007
Started production in November
Zhejiang Hukoudu
2007
Zhejiang Jiuzhou
Phase I started production
Zhejiang Zhoushan
Started production in 2007
Jiangsu Jinling
Started production in January 2008
No. 4 generator of Zhejiang Yuhuan Power Station passed testing
operation of 168 hours in November 2007, which marked success
of million KW ultra supercritical thermal power generators (百万
千瓦超超临界火电机组) produced by Harbin Boiler Factory21.
Guangzhou Longxue
17
Priority: large scale highefficiency clean power
generation equipments,
including: million KW ultra
supercritical thermal power
generators (百万千瓦超超临
界火电机组)
Priority: large scale highefficiency clean power
generation equipments,
including: fuel gas-steam
joint circulation generators (
燃气—蒸汽联合循环机组)
Priority: large scale highefficiency clean power
generation equipments,
including: Integrated
Gasification Combined
Cycle(IGCC) power
generator (整体煤气化燃气
－蒸汽联合循环机组)
Priority: large scale highefficiency
clean
power
generation
equipments,
18
19
20
21
Impression: S
Anshan Steel completed its CCPP project on July 19, 2007, which
installed the first fuel gas-steam joint circulation generators (燃气
—蒸汽联合循环机组) in China22.
Impression: S
Huaneng Group signed agreements with Tianjin municipal
government on Sept. 1, 2006 and April 18, 2007 on the first and
second phases of collaboration in building IGCC demonstration
project in Tianjin23. Another IGCC plant, the largest in the world
so far, will be built in Dongguang, Guangdong province by
201124.
Impression: S
The first 210,000 KW large CFB boiler with complete
domestically owned IPRs passed 96 hours of testing operation in
July 2006 25 ; the first 300,000 KW CFB boilder with complete
Impression: S
“首套国产百万千瓦超超临界火电机组运行成功”，http://www.ceptc.com/news/News_View.asp?NewsID=1833。
“国内第一台燃气蒸汽联合循环发电机组竣工投产”，http://liaoning.nen.com.cn/77970767572107264/20070720/2271774.shtml。
23 “华能绿色煤电起步，IGCC 示范项目落户天津”，http://news.cepee.com/html/2006/9/2006949386.htm；
“华能将在天津建设绿色煤电二期 40 万千瓦级 IGCC 电站”，http://china.epenet.cn/Info/92261/Index.shtml。
24 “我国将建全球最大环保电站每小时发电 80 万千瓦时”，http://www.cpeinet.com.cn/new/displaynews.aspx?id=ff9ec3f8-2481-4975-9a2a-fb6c29d8fa7f。
25 “首台自主知识产权大容量循环流化床锅炉投运”
22
143
21
22
23
24
including: large Circulating
Fluid Bed (CFB) Boiler (大
型循环流化床锅炉)
Priority: large scale highefficiency
clean
power
generation
equipments,
including: large power wind
generator equipment (大功率
风力发电设备)
Priority:
mastering
the
manufacturing
technology
for key transmission and
transformation equipments of
±500
KV
direct
currentand
750KV
alternating current.
Priority:
developing
set
equipments for 1000 千伏特
高压交流和±800 千伏直流
输变电
Priority: promoting domestic
production of million tons
scale set equipment for
ethylene
domestically IPRs is under production26.
The development of the first 2MW variable-speed constantfrequency wind power generators (变速恒频风力发电机组) with
complete domestically owned IPRs reached success in Chongqing
in November 200727
Impression: S
China has reached international technological frontier in the
design and manufacturing 500 千伏超高压输变电 equipments. In
the demonstration project of Qinghai-Gansu 750 千伏交流输变电
, China has mastered manufacturing technology of key equipments
of 750 千伏交流输变电. In the western power to east project,
China has also mastered manufacturing technology of key
28
equipments ±500 千伏直流输电 .
June 15, 2007, 1000 千伏同塔双回试验线段带电成功，标志
着国家电网公司特高压交流试验基地实现了全站带电.Dec.
17, 2007, 国家电网公司与 8 家设备制造企业在北京签署了
四川－上海±800 千伏特高压直流工程主设备合同，标志着该
29
特高压直流示范工程设备研制生产进入全面实施阶段.
When the million tons ethylene device in Maomin, Guangdong
province, started production in September 2006, 448 of its 510
equipments were domestically made, the highest share of domestic
30
products .
Impression: S
Impression: S
NDRC policies restricts
imports of petro-chemical
equipments. All new petrochemical projects are
required to submit a list of
equipments to NDRC, and
import is not allowed for
those equipments that have
Impression: S
http://news.cepee.com/html/2006/7/20067128328.htm
26 “利用煤矸石发电 CFB 锅炉迎来新机遇”，http://www.cpeinet.com.cn/new/displaynews.aspx?id=d4cf9a60-353b-4c6d-86e8-14bd7810eaea
27 “国内最大功率风力发电机组在渝研制成功”http://news.cepee.com/html/2007/11/20071127101935.htm。
28 “ 我 国 装 备 制 造 业 自 主 创 新 和 世 界 装 备 制 造 业 发 展 情 况 ” ， 张 国 宝 ， 2007 年 12 月 29 日 。 http://chinaneast.xinhuanet.com/jszb/200712/29/content_12084503.htm
29 http://www.sgcc.com.cn/ztzl/zgtgy/default.shtml
30 http://www.chcj.net/thread-917849-1-1.html
144
been made domestically and
widely adopted.31
25
Priority: developing devices
of coal liquefaction and coalto-olefins transformation (煤
炭液化和气化、煤制烯烃)
The Shenhua Group’s coal-to-oil demonstration project of one
million tons completed equipment installation at end of 2007, the
first product is expected to emerge in September 200832. The
Yankuan demonstration project of indirect coal liquefaction
passed NDRC appraisal in January 2008. The first production line
of one million tons oil will be completed by end of 200933.
Shenhua Group is building four sets of coal-to-olefins devices. Its
Baotou device started construction in 2005 and is expected to
complete in September 200834. Some equipments installed in the
project are still imported ones35.
26
Priority: comprehensive coal
mining equipment
The first set of comprehensive coal mining equipment at the scale
of 6 million tons per annum passed appraisal in Ningxia in January
2007. MOST approved Taiyuan Mining Machinery Company to
lead the technology development project for high-efficiency
integrated mechanic-electric equipment serving coal mining of the
scale of 8-10 million tons per annum. Shenhua Group has gained
the technological capacity to manufacture hydraulic pressure
support, which accounts for 70% of the value of comprehensive
31
http://finance.jrj.com.cn/news/2007-11-30/000002993180.html
http://finance.sina.com.cn/chanjing/b/20080304/02104574733.shtml
33
http://www.enoya.com/read.php?tid=3320562
34
http://www.xcar.com.cn/bbs_dz55/viewthread.php?tid=7153151
35
http://lz.fengj.com/html/164/news_show_164605.html
36
http://www.sdpc.gov.cn/gyfz/gyfz/t20060713_76372.htm
http://www.china.com.cn/economic/zhuanti/wyh/2008-01/22/content_9566912.htm
32
NDRC issued notice in 2006
to encourage the “healthy
development of coalchemical industry by
strengthening regulation of
projects”. It requires
demonstrative coal
liquefaction projects not
being disseminated before
achieving success, and coalto-oil projects below the
scale of 3 million tons per
year, coal-to-olefins projects
below the scale of 0.6
million tons per year should
not be approved. Those that
are under construction
without approval should be
called off36.
Impression: S
Impression: S
145
coal mining equipment and the market has been totally occupied
by imports.
27
Priority: mastering the core
technology for high-speed
train at the scale of 200km/h
and above, and achieving
industrialization
CRH EMUs at the speed of 200km/h and 300km/h were
successfully put in operation in 2007. EMUs at the speed of
350km/h are under development37.
28
Priority: large environment
protection equipments
including those of urban and
industrial waste water
processing
The special program of “water pollution control” run by MOST
has developed 11 core technologies, filed 421 patent applications,
and constructed over 100 demonstration projects39.
30
Priority: large environment
protection equipments
including those for air
At end of 2005, the total capacity of installed desulphurization (脱
硫) device for power generators stood at 44 million KW. In 2007,
The government has
decided to build high-speed
special passenger railway
lines for Beijing-Shanghai,
Beijing-Guangzhou,
Beijing-Harbin, ShenyangDalian and Longhai, at the
speed of 200km/h and
300km/h during the 11th
5YP period. The existing
lines will continue to raise
their speed. Total
investment amounts to
RMB1.25 trillion. This
creates large demand for
domestically manufactured
trains and stimulates
technological progress38.
Impression: S
Information is
limited to gauge
the progress, but it
seems still some
distance away from
mastering the core
technology of this
equipment.
Impression: Q
Impression: S
“看亮点，话发展从 200 公里到 300 公里，南车四方驶出中国速度”，http://www.qingdao.gov.cn/n172/n1530/n32936/464580.html; “时速 350 公里动车组
列车研制工作也已全面启动”，人民铁道，2007 年 9 月 10 日，第 A04 版.
38
“铁路大提速推出千亿元盛宴”，经济参考报，2007 年 4 月 12 日，第 001 版。
37
39
www.gov.cn/gzdt/2006-05/22/content_287274.htm; http://news.163.com/06/0412/08/2EGB7L210001124J.html
146
31
32
pollution
total capacity of this kind of devices that started operation or
completed construction reached 50 million KW 40. China has
mastered the mainstream technology with its own IPRs for haze
desulphurization (烟气脱硫) for 0.3 million KW thermal power
generators41. The first domestically produced desulphurization
device for boilers of 600 兆瓦超临界 generators passed 168 hours
testing operation in Changsha in October 200742
.
Priority: large environment
protection equipments
including those for sea water
utilization
Priority: lifting the
technological level of large,
precise and high-speed
digital machine tools
As of 2006, China had mastered the two mainstream technologies
for seawater desalination and reduced the cost of desalized
seawater to RMB5 per ton, close to international standard43.
Since 2006, hi-speed processing centers produced by Dalian and
Shenyang machine tool producers have won international bidding.
Chinese aviation and aerospace equipments producers have
adopted five-axis hi-speed processing centers and milling
machines built by Ningbo, Shenyang and Jinan producers. Over 20
producers gained capacity in producing five-axis joint-movement
processing centers. Shenyang Machine Tool Company has gained
the capacity of producing series of five-axis lathe-milling centers,
some of which exported to Germany and the U.S. 44 The share of
digital machine tools in total machine tool output value rose from
35.5% in 2005 to 42% in 2007. However, in the domestic market
for digital machine tools, domestically made products accounted
for only 31%, slightly higher than 30.4% of 2005 and far from the
11th 5YP target of 50%45.
Chapter 13: Adjusting the Structure and Spatial Layout of Raw Material Industries
33
Resolve the problem of over- At end-2005, China’s steel industry had a steel-making capacity of
capacity in the steel industry
414 million tons for steel-rolling capacity of 420 million tons.
40
http://www.51report.com/free/detail/32516.html
http://www.01hr.com/dianlizhaopin/electpin_article_detail.do?op=detail&id=567
42
http://www.cs.com.cn/gz/04/200712/t20071204_1255622.htm
43
http://www.jfdaily.com/gb/jfxww/jishibb/node9367/userobject1ai1494618.html
44
中国产业竞争情报网 http://www.chinacir.com.cn/zxqb/200773193949.html
45
数据来源：中国二手设备网 http://www.fengj.com/html/113/news_show_113026.html
46
数据来源：http://www.chinatax.gov.cn/n480462/n480483/n480565/5077405.html
41
Impression: S
A joint notice of MOF,
NDRC, SAT and the
Custom in January 200746
issued import tax refund
policies for imports of key
parts and components, raw
materials that are required to
produce 16 key equipments,
including large, precise and
high-speed digital machine
tools. Refunded tax is left
with the importers as
government equity
investment to finance R&D.
The 11th 5YP target
is set at over 50%
market share of
domestically made
digital machine
tools. There was a
gap of 19
percentage points
in 2006 and the
progress made in
2006 was only 0.6
point. Impression:
Q
The State Council held
working conference for
Growth of new
capacity did not
147
as a priority by strictly
controlling new capacities
and phasing out
technologically backward
capacity at faster pace
Newly built steel-making capacity was 62 million tons in 2006,
and newly built steel-rolling capacity was 79 millions in 2007.47
However, there has been report of new capacity growth slowdown
in the first months of 200848. Progress in phasing out backward
capacity has been slow. As of mid-2007, the ten provinces that
have signed responsibility contracts with NDRC completed only
43% of their targeted amount for iron and 36% for steel 49.
34
Promote circular economy in
the steel industry
There is remarkable performance in terms of energy efficiency and
reduction of emission in the steel industry in 2006-07, as shown
below51 (% change yoy, for per ton of steel):
Indicator
2006
Jan-Oct.
2007
Comprehensive energy consumption -7.10
-2.32
Fresh water consumption
-14.90
-16.24
Smoke emission
-2.99
-0.82
Dust emission
-1.76
-1.48
Sulphur dioxide emission
-4.10
-0.40
35
Bring into being some
internationally competitive
firms by encouraging crossregional reorganization
Dividing steel producers into groups according to their output and
looking at the share of each group in total output of the industry
(table below52), one finds increasing prominence of both the
largest and smallest producers. This trend is confirmed by another
set of data53: the market share of largest ten producers has been
stable around 34% during 2004-06, while that of producers who
ranked 61th and smaller increased from 17% in 2004 to 23% in
2006.
Groups (million
2004
2005
2006
tons)
47
http://blog2.eastmoney.com/blog_look1.asp?dcuser_name=zzmm1234&dcblog_id=460453
http://www.chinaccm.com/51/5105/510501/news/20070625/094134.asp
49
数据来源：http://www.tncsteel.com/data/2007/0906/article_23250.php
50
http://finance.sina.com.cn/roll/20071228/02301893732.shtml.
51
数据来源：和讯网 http://news.hexun.com/2007-12-14/102300461.html
52
数据来源：http://content.caixun.com/NE/00/d9/NE00d9jb.shtml
53
数据来源：http://content.caixun.com/NE/00/d9/NE00d9jb2.shtml
48
phasing out backward steel
production capacities.
NDRC signed responsibility
contracts with 18 provinces
(cities), which promised to
phase out steel making
capacity of 77.76 million
tons by 201050.
seem to be under
control in 2006-07.
And it seems still a
long way to go to
achieve the target
of phasing out
capacity by 2010.
Impression: Q
Impression: S
The large
producers are
expanding rapidly,
while small
producers are also
increasing their
market share.
Impression: S
148
36
Control the production of
electrolytic aluminum
37
Develop the production of
aluminum oxide
38
Expand oil refinery capacity
in oil-consumption regions
and control oil refinery
capacity in regions where
capacity is relatively
excessive
54
>10
12
30
32
5-10
33
19
19
2-5
29
23
22
1-2
10
9
7
<1
16
19
21
The production of electrolytic aluminum does not seem to have
been controlled,
Year
electrolytic aluminum output 54 (million
tons)
2004
10.7
2005
12
2006
14.5
The production of aluminum oxide has increased sharply.
Year
aluminum oxide output55 (million tons)
2004
9.6
2005
15
2006
27
Table below56 shows the nine provinces that have started building
new oil refinery capacity or will do so in 11 th 5YP. Most of them
are consumption regions, except for Liaoning and Xinjiang and
Tianjin.
Province
Gasoline
New refinery capacity
consumption
in 11th 5YP (million
as
%
of tons)
production
Fujian
47.6
12
Guangdong
52.0
18
Guangxi
13.2
10
Hainan
0
8
Liaoning
271
20
Shandong
101
10
Tianjin
122
7.5
数据来源：http://www.singtaonet.com/trade/200701/t20070131_443179.html
数据来源：http://www.mmimm.com/SRD1220399/
56
国家统计局，wind 资讯
55
Impression: Q
Impression: S
Impression: S
149
39
Build urea production bases
at the scale of million tons in
regions of energy production
and grain/cotton production
40
Build potassium fertilizer
production base in Qinghai
and Xinjiang
41
Control total production of
pesticide, develop highefficiency, low-poison
pesticide
42
Adjust the structure of
construction materials
industry focusing on energy
saving, environmental
protection and quality
improvement
xinjiang
225
10
Zhejiang
78
12
There are eight urea projects that have started construction or will
do so. Three of them locate in Inner Mongolia (energy production
province), two in Xinjiang (energy, grain and cotton production
province), one in Qinghai (energy production) and one in Anhui
(grain production) 57.
Qinghai Salt Lake Group accounts for 80% of national production
capacity. The second phase of is million tons potassium fertilizer
project is under construction58. The project of Luobu lake
production base at the scale of 1.2 million tons is reportedly
proceeding smoothly, to be expected to start production at end of
200859.
Total production of chemical pesticide increased by 24.3% in
2006 and 20.2% in 200760. Five high-poison pesticides, including
methylamine phosphorus, were banned from production, sales and
consumption in January 200861.
62
Key indicators of energy efficiency and emission control below
suggested significant progress.
Indicator
2005
2006
2007
Impression: S
Impression: S
Impression: S
Impression: S
中国拟在建项目网 www.bhi.com.cn
http://finance.sina.com.cn/stock/t/20070323/10201284564.shtml
59 http://byglnews.xjnews.cn/html/200709/6/20070906120604.htm
60 国家统计局
61 http://www.agrichem.cn/news/2008/1/11/200811117332956699.shtml
62 “2005 年数据来自“产业发展迅猛，全球性建材企业呼之欲出”，www.bmlink.com/news/html/news_Info82_099550717.html；
“2006 年建材工业快速稳定发展”，www.3869.com/newsshop/news_call/news_02/200714/200714225217.asp.
“2006 年数据来自“张人为：增强责任感和使命感大力推进建材循环经济的发展”，www.cs.ecitic.com/news/NewsContent.jsp?docId=1161631.
“ 2007 年数据来自“十一五期间建材工业万元增加值能耗下降 20%”，www.c-bm.com/hydt/lianjie1.asp?id=29663
57
58
150
Comprehensive energy
63
consumption (ton standard
coal per 10000 yuan value
added)
64
Of which the cement sector
Smoke and dust emission
(ton per 10000 yuan value
added)
Sulphur dioxide emission
(ton per 10000 yuan value
added)
43
Develop new suspension
preheater (NSP) cement
production at the scale of
5000 tons per day in regions
where conditions are ready
Raise quality of glass
44
6.14
5.65
5.10
14.06
0.071
12.56
0.058
12.05
0.017
0.014
Carbon dioxide emission (ton
6.23
5.32
per 10000 yuan value added)
The share of NSP cement in total cement production rose from
65
40% in 2005 to 55% in 2007 . 80 million tons of technologically
backward capacity was phased out in 200766.
The share of high-quality 浮法玻璃 and special category glass in
67
total glass production rose from 23% in 2005 to 25% in 2006 .
“十一五期间建材工业万元增加值能耗下降 20%”，www.c-bm.com/hydt/lianjie1.asp?id=29663；
“2007 年建材工业万元增加值综合能耗下降 11％”，www.c-bm.com/hydt/lianjie1.asp?id=28843；
“张人为：增强责任感和使命感大力推进建材循环经济的发展”，www.cs.ecitic.com/news/NewsContent.jsp?docId=1161631；
“2006 年建材工业综合能耗下降 11.35％”，http://house.northeast.cn/system/2007/09/01/050957270.shtml。
64“雷前治在《水泥工厂节能设计规范》颁布新闻发布会上的讲话”，www.dcement.com/Article/200711/60711.html
65“数据来自“建材工业‘十一五’发展规划纲要发布”，www.sz-sinoma.cn/UploadPDF/UploadPDF/200737132754291.pdf；
“孔祥忠：水泥工业的结构调整和科技进步”，info.bm.hc360.com/2007/04/02142450227.shtml；
“我国新型干法水泥比重提高到 55%以上”，www.bm.cei.gov.cn/allfile/12/2008021815085812023.asp。
66
“建材工业 2007 年取得的成就及 2008 年发展重点”，http://www.c-bm.com/news/2008/1-10/B9740705.htm。
67
“数据来自“建材工业‘十一五’发展规划纲要发布”，www.sz-sinoma.cn/UploadPDF/UploadPDF/200737132754291.pdf；
“建筑与工业玻璃的结构优化有了新的进步”，www.bm.cei.gov.cn/allfile/04/2008022209064804008.asp；
“产业发展迅猛，全球性建材企业呼之欲出”，www.bmlink.com/news/html/news_Info82_099550717.html；
“平板玻璃工业:结构调整任重道远”，www.bmlink.com/news/html/news_Info82_099718017.html。
63
Impression: S
Impression: S
151
45
Develop new types of
energy-saving, environmentfriendly construction
materials with great force
The share of new types of wall body materials in total production
rose from 40% in 2005 to 46% in 2006 68.
“数据来自“建材工业‘十一五’发展规划纲要发布”, www.sz-sinoma.cn/UploadPDF/UploadPDF/200737132754291.pdf；
“全国新型墙材现场经验交流会在杭州召开”，www.52jcw.com/news/Article/HTML/4697.html.
68
Impression: S
152
Annex 4: “New Socialist Countryside”
In the 11th 5-Year Plan, the construction of the New Socialist Countryside is described as
follows:
1. Development of modern agriculture:
 Increase agricultural productivity;
 Promote structural adjustment in the agricultural sector;
 Improve the agricultural service system; and
 Improve the agricultural product circulation system (the markets).
2. Increase farmers’ incomes:
 Increase agricultural income;
 Increase non-agricultural income; and
 Improve the “Policy of Income Increase and Farmer Burden Reduction.”
3. Improve rural living conditions:
 Strengthen construction of rural infrastructure;
 Strengthen rural environmental protection;
 Develop rural health services; and
 Develop rural social security.
4. Train a “new type” of farmers:
 Further extend and strengthen the rural compulsory education;
 Strengthen rural labor force skill training; and
 Develop rural cultural activities.
5. Increase agricultural and rural investments
6. Deepen rural reforms
A detailed overview of the associated programs and policies is described in the
background paper “Overview of Policies Related to Agriculture, Farmers and Rural
Areas in China 2000-2007”, February 2008, China Agricultural University, College of
Economics & Management which has been prepared for this chapter by Lin Wanlong,
Cao Mei, and Wang Peng.
153
Annex 5: NDRC Investments in Agriculture and Rural Development
Investment Types
Investment Per Year
Description
Target Areas
Provinces in major river basins.
Dams categorized as
“dangerous” according to set
procedures.
2003
2004
2005
2006
2007
193
190
106.2
106
181
115
85
51.7
32
81.5
Targeting major rivers and dam safety
2.Strengthening and reinforcing
Dangerous Reservoirs
46
41
20
25
32
Reinforcement of dangerous dams and reservoirs
3.Water conservation rehabilitation
on Large Irrigation Areas
15
13
24.5
21
21
Follow up construction and rehabilitation of main
dikes, secondary dikes, and other related facilities
4.Water Resources Protection
7
5
2
1
2
5.Meteorology radar and satellite
10
6
4
3
3.92
6.Other
II. Forest & Ecological Protection
91
40
70
4
100.6
24
58.5
41
77
I. Water Conservancy and
Meteorology
1.Key Water Conservancy Projects
Natural Forest Resources Protection
and Return Slope-land to Forestry
and Grassland
51
17
33
19.5
21
Sand Storm Prevention Project
16
32
16
10
14
Key Forest and Forest Anti-fire
Project
20
15
12
15
22
Improve natural grassland
4
6
36.6
10
15
Urban and industrial water pollution control in
water sources.
Weather radar and meteorological satellite
construction.
Other water conservancy projects
Forest fire protection; forest seeding; technical
support; returning wasteland and slope-land to
forestry in the upper Yangtze Basin and upper and
middle ranges of Yellow River Basin
In the areas where sand storms form, adopt grazing
ban, grassland management, ecological
resettlement, ecological afforestation, returning
wasteland and slope land to forestry and grasslands,
overall watershed management
Forest fire protection, afforestation, ecological
forestry on slopes, protection of natural forests,
wetland protection, wildlife protection and
rehabilitation
Fencing of grassland in Western provinces
All country
Beijing surrounding areas
Selected provinces
All country
Relevant provinces
Beijing, Hebei, Inner Mongolia
Selected provinces
Western provinces
154
Investment Types
Investment Per Year
Other
III. Agricultural Comprehensive
Productivity
34
High-quality grain production
Improved
seeds
agricultural projects
and
other
Animal and Plant Protection
Other
IV. Improving Production and
Living Conditions in Rural Areas
36
3
4
5
25.2
35.5
50.23
10
10
11.5
16
18
14
8.2
12.5
21
16
12
5
11.5
12
2
1.3
184
176
149
204
219
Safe Drinking Water
28
18
20
60
64
Roads and Electricity
66
72
51
62
72.9
Biogas
Poverty Reduction
Other
10
80
502
10
76
472
10
68
381
25
57
404
25
57
528
Description
Target Areas
Other ecological forestry projects
All country
484 major grain production counties, 50 million mu
standard farmland, 398 quality special seed
cultivation projects, 321 special pest prevention
areas, set up with 80,000sets of modern agricultural
equipment
13 major
provinces
Establish national and sub-national crop
improvement centers and seed bases; seed quality
detection centers and test stations for other crops
Establish and improve animal disease monitoring,
warning, prevention control, quarantine and
supervision, veterinary inspection, technical
support.
Other agricultural projects
Provision of safe drinking water with focus on high
fluorine and high arsenic content.
Construction of rural roads and extension power to
all villages.
Building biogas digesters
Infrastructure construction in poor rural areas
Construct and rehabilitate rural boarding schools
(improve lodging conditions)
Construct distance learning teaching stations and
computer class rooms.
Construction of rural vocational schools
Construct rural TV broadcasting stations
Expand and renovate village clinics, township
hospitals, county hospitals, and county maternal
and childcare institutions
Develop (and construct) farmer wholesale market
grain
production
Selected provinces
Selected provinces
Selected provinces
All country, with focus on
Central and Western regions
Most provinces
Selected provinces
Selected provinces
Selected provinces
Selected provinces
Selected provinces
Selected provinces
Selected provinces
155
Investment Types
Investment Per Year
Description
information systems
Target Areas
156
Annex 6: Labor Mobility Programs and Interventions
No.
1.
Project Name
Green Certificate Program
2.
New type farmer S&T training
program （ Evolved from the
Green Certificate Program）
3.
A million vocational students
project
2006
4.
Rural practical technique
training
Agricultural S&T entering
farmer’s
family
demonstration project
Farmer’s S&T book-house
project
Carried out in every year
About 20 million
2005
100 thousand trainees in 100 counties in 2005；200
thousand trainees in 200 counties in 2006 ；250 thousand
trainees in 300 counties in 2007
625 in year 2003；1000 in year 2004；471 in year 2005；
800 in year 2006.
“National excellent rural
talent” medal” project
“National
agricultural
outstanding
talent
acknowledgement"
Rural labor transfer training
“Sunshine Program”
2000
5.
6.
7.
8.
9.
Launch Year
Pilot in year 1990;
implemented from year
1994
2006
2003
2005
2004
Trainee Number
The total number of trainees is 29 million by the end of year
2006; 13 million gained Green Certification
Central Government Input
None
300 counties, 10 thousand villages，0.4 million trainees in
Year 2006; 600 counties, 20 thousand villages, 0.8 million
trainees in year 2007; the goal is 200 thousand villages, 8
million trainees during 11th-5 year plan
The goal is to train 1 million students in 10 years; 100
thousand have been trained in year 2006.
0.1 billion Yuan in year 2006; 0.2 billion
Yuan in year 2007; 250 Yuan per person
in average.
Encourage 1 group each 3 years: 10 persons in year 2000; 50
in year 2003; 100 in year 2007
Encourage 10 persons per every 2 years, 200 thousand Yuan
per person.
2.5 million in year 2004; 2.8 million in year 2005; 3.5 million
in year 2006; 3.5 million in year 2007.
No special financial support; belongs to
part of other financial support project
(financial support for rural professional
training schools)
None
30 million Yuan in 2005 ； 50 million
Yuan in 2006；60 million Yuan in 2007
The total input is 13 million Yuan from
year 2003 to year 2007; 4500 Yuan for
each book-house in average
2 million Yuan from year 2000 to year
2007 (as special working expenditure)
The total input is 4 million Yuan from
year 2005 to year 2007 for 20 persons
0.25 billion Yuan in year 2004; 0.4
billion Yuan in year 2005; 0.6 billion
Yuan in year 2006; 0.9 billion Yuan in
year 2007.
The total input of central finance is 2.15
billion Yuan from year 2004 to year
2007; bring along above 1.6 billion Yuan
input of provincial finance.
157
Annex 7: China 11th Five-Year Program Key Policies and Regulations
in Social Protection (2005-2008)
Area
Social Insurance
Pensions
Key Policies and Regulations





Unemployment insurance


Work injury insurance



Social insurance administration and
financial management




National Social Security Fund

Social Assistance
General
Rural and urban dibao




Decision on Improving Basic Enterprise Pension
Insurance System (State Council Document No. 38,
2005)
Circular on Pooling Funds in Basic Old Age Insurance
for Enterprise Employees at the Provincial Level
(MOLSS Document No.3, 2007)
Circular on Further Expanding Financing of Individual
Accounts (MOLSS Document No. 6, 2007)
Plan on Piloting Pension Reforms for Civil Servants
(approved by the State Council in February 2008)
Proposal on Handing over Former Enterprise Annuity
Schemes (MOLSS Document No.12, 2007)
Notice of the State Council on Employment Promotion
(State Council Document No. 5, 2008)
Notice on the Pilot of Expanding Expenditures of the
Unemployment Insurance Fund (MOLSS Document No.
5, 2006)
Amendment of Work-Related Injury Insurance [draft]
Notice on the Implementation of “Safety Plan” for Rural
Migrant Workers and Encouraging Their Participation in
Work Injury Insurance (MOLSS Document No. 19,
2006)
Rules of Work Injury Insurance for Rural Migrant
Workers in Construction Industry (MOLSS Document
No. 44, 2006)
Regulations for Management and Supervision of Social
Insurance Funds [draft]
Guidelines for Improving Administration of the Social
Security System (MOLSS Document No. 10, 2006)
Notice on Improving the Audit System Applied to Social
Insurance Programs (MOLSS Document No. 4, 2005)
Circular on Off-Site Surveillance of Social Insurance
Funds (MOLSS Document No. 13, 2005)
Interim Guidelines on the Administration of Overseas
Investment by the National Social Security Fund (issued
1 May 2005)
Social Assistance Law [draft]
Circular on Establishing the Minimum Subsistence
Guarantee System in Rural Areas (State Council
Document No. 19, 2007)
Circular on Further Increasing Urban/Rural Dibao
Benefit Levels to Guarantee the Basic Living of the Poor
and Vulnerable (MOF and MOCA, February 2008)
Circular on Properly Solving the Life-Related Problems
for Urban Dibao Families (MOCA, August 2007)
158

Wubao
Disaster relief
Support to land-loss farmers
Assistance for transient poverty
Employment
Labor contracts, worker rights, and
dispute resolution
Migrant labor
Circular on Standardizing Dibao Related Works in
Grassroots (MOCA, June 2007)
 Working Rules for the Five Guarantees Program (State
Council Decree No. 456, January 2006)
 Circular on the Establishment of Welfare Houses for
Wubao Beneficiaries (MOCA Document No. 107, 2006)
 Circular on Guidance on Implementation
(MOCA/NDRC/MOF Document No. 146, 2006)
 Notice on the Implementation of Sunshine Project about
Improving Service for Wubao Beneficiaries (MOCA
Document No. 206, 2006)
 11th Five Year Plan of Comprehensive Disaster Relief
(State Council, August 2007)
 Working Rules on Dealing with Natural Disasters
(MOCA, revised in April 2006)
 Guidelines on Employment Training and Social
Protection for Land Loss Farmers (State Council
Document No. 29, 2006)
 Policies for Land Loss Farmers Participating in the Social
Security System (MOLSS Document No. 14, 2007)
 Circular on Further Developing Temporary Assistance
System (MOCA Document No. 92, 2007)







Labor Contract Law (enacted June 2007)
Employment Promotion Law (enacted August 2007)
Labor Dispute Negotiation and Settlement Law (enacted
December 2007)
State Council Opinion on Rural Migrant Workers (State
Council Document No. 5, 2006)
Implementation Policies Regarding Social Protection for
Rural Migrant Workers (MOLSS Document No. 15,
2006)
Notice on the Implementation of “Safety Plan” for Rural
Migrant Workers and Encouraging Their Participation in
Work Injury Insurance (MOLSS Document No. 19,
2006)
Rules of Work Injury Insurance for Rural Migrant
Workers in Construction Industry (MOLSS Document
No. 44, 2006)
159
Annex 8: Urban Pension System in China: Summary of Major Policy
Changes
The following table summarizes the main policy changes introduced in the urban pension
system in State Council Document No. 38 (2005), compared to the previous policies laid
out in State Council Document No. 26 (1997).
Individual
Account


Benefit

Document No. 26 (1997)
11percent of individual wage
8percent individual contributions +
3percent employer contributions
Basic pension + individual account
pension
* Basic
pension
i.

Basic pension = average local wage 
20percent
* Individual
account
pension

Individual account pension = saving
amount in individual account / 120







Coverage


The participation of self-employed and
informal employed workers is optional
It is up to the provincial government to
determine the specific policies for selfemployed and informal employed
workers



Document No. 38 (2005)
Funding individual account with 8percent
of individual wage
From individual contributions
Basic pension + individual account
pension
Linked to the length of contribution
Basic pension = (average local wage +
average individual indexed wage as the
base for contribution) / 2  contribution
length (year)  1percent
Individual account pension = saving
amount in individual account / delivery
length (month)
Delivery length is determined according
to average life expectancy for urban
residents, retirement age, interest rate,
etc.
Self-employed and informal employed
worker are required to make
contributions
Total contribution = local average wage
 20percent
The benefit level is the same as for
enterprise employees
160
Annex 9: China 11th 5YP: Key Policies on Health (2005-2008)
Collection of Recent Policy Documents in Health
Area
Key Policies and Regulations
Health Financing and Protection
Cooperative Medical
System








Urban Employee basic
Medical Insurance



Urban Residents





State Council Notice on Forwarding Suggestions of Ministry
of Health on Establishing New Cooperative Medical System
(State Council [2003] No.3)
State Council Notice on Forwarding Suggestions of Ministry
of Health on Further Strengthening the pilot of New Rural
Cooperative Medical System (State council [2004] No.3)
Notice on Speeding up the Pilot of New Cooperative
Medical System (MoH, Rural Health [2006] No.13)
Ministry of Finance and Ministry of Health Notice on
Adjusting Payment Methods of Central Government Subsidy
to New Cooperative Medical System (MoF, MoCA [2007]
No.5)
Suggestions on Improving Pooling and Reimbursement
Scheme of New Cooperative Medical System (MoH Rural
Health [2007] No.253)
Suggestions of Ministry of Health on Establishing
Information System for New Rural Cooperative Medical
System (MoH Rural Health [2006] No.453)
Ministry of Health and Ministry of Finance Notice on
Implementation New Rural Cooperative Medical System in
2007 (MoH Rural Health [2007] No.82)
Notice on Implementation New Rural Cooperative Medical
System in 2008 (MoH Rural Health [2008] No.17)
Suggestions on Encouraging Staff from Mixed Ownership
Enterprises and Non-Public Ownership Economic
Organizations to Join Medical Insurance (MoLSS [2004] No.
5)
Notice on Expanding the Coverage of Medical Insurance for
Migrant Workers (MoLSS [2006] No.11)
Suggestions on Encouraging Medical Insurance
Beneficiaries to Make Full Use of Community Health
Services (MOLSS [2006] No.23)
Notice on Covering Urban Residents with Difficulties into
Basic Medical Insurance for Urban Residents (MoCA [2007]
No.15)
State Council Suggestions on Experiment Development of
Basic Medical Insurance for Urban Residents (State Council
[2007] No. 20）
Suggestion on Management Service of Basic Medical
Insurance for Urban Residents (MoLSS [2007] No.40)
State Council establishing Joint Conference of Basic
Medical Insurance Department for Urban Residents( NDRC
Web 05/18/2007）
Notice on Distributing Suggestions on Management Service
of Basic Medical Insurance for Urban Residents (MoLSS
161
Medical Assistance





Health Sciences Delivery
Rural Community






Urban Community







[2007] No.34)
Suggestions on Implementing Rural Medical Assistance
(MoCA [2003] No. 158)
Ministry of Finance and Ministry of Civil Affairs Notice on
Distributing Provisional Measures on Rural Medical
Assistance Fund Management (MoF, MoCA [2004] No. 1)
Suggestions on Strengthening Management of Urban
Medical Assistance Fund (MoF, MoCA〔 2005〕 No.39)
State Council General Office Notice on Forwarding
Suggestions of Ministry of Civil Affairs regarding Setting up
Urban Medical Assistance System Pilots (State
Council[2005] No.10)
Ministry of Civil Affairs, Ministry of Health and Ministry of
Finance Notice on Speeding up Rural Medical Assistance
Work (MoCA [2005] No. 121)
Decision of the Central Committee of Communist Party of
China and the State Council on Further Strengthening Rural
Health Work (CCCP〔 2002〕 No. 13)
Fundamental Idea and Overall Objective for Pushing
Forward the Rural Health Reform and Development During
the 11th Five-Year Plan 2005
Suggestions of the Central Committee of Communist Party
of China and the State Council on Pushing Forward the
Building of Socialist New Countryside (CCCP〔 2006〕 No.
1)
Notice on Distributing the Plan on Rural Health Service
System Building and Development (MoH〔 2006〕 No.340)
Suggestions on Rural Health Subsidy Policy
(MoF〔 2003〕 No. 14)
Notice on Distributing Suggestions on Building Village
Clinics with Central Budgetary Special Funds(Treasury
Bond) (MoH [2007] No.138)
Suggestions of the State Council on Developing Urban
Community Health Service (State council〔 2006〕 No. 10)
Notice on Distributing Suggestions on the Setting and
Staffing of Urban Community Health Service Institutions
(Personnel Ministry [2006] No.96)
Notice on Basic Standards Regarding Urban Community
Health Service Center and Station (MoH [2006] No.240)
Notice on Management (trial) of Urban Community Health
Service Institutions (MoH [2006] No.239)
Suggestions of Ministry of Health and State Administration
of Traditional Chinese Medicine on Fully Playing the Role
of Traditional Chinese Medicine in Urban Community
Health Service (Bureau of Traditional Chinese
medicine〔 2006〕 No.36)
National Development and Reform Commission and
Ministry of Health Suggestions on Strengthening price
management of drug and Service of Community Health
Service Institutions (NDRC [2006] No.305)
Ministry of Finance, National Development and Reform
Commission and Ministry of Health Suggestions on Urban
Community Health Service Subsidy Policy (MoF [2006]
162
No.61)
Suggestions on Public Hospitals Supporting Community
Health Service (MoH [2006] No.244)
 Suggestions on facilitating BMI enrollees to utilize
Community Health Service (MoLSS [2006] No.22)
 Suggestions on Strengthening Human resources for
Community Health Service (MoH [2006] No.69)
 Notice on Distributing Medicine Catalogue for Community
Health Service Institutions (MoH [2007] No.251)
Human Resources
 Regulation Concerning New Staff in Urban Medical
Institutions Paying Regular Service to Rural Areas after
Having Obtained Practicing Certificate of Doctors (MoH
[2004] No.115)
 Suggestions of Ministry of Health on Strengthening Health
Staff Team-building During 11th Five-year Plan (2006)
 Guidance Suggestion on Strengthening Health Vocational
Education (2006)
Food safety and Pharmaceuticals
 Drug Administration Law (President of People’s Republic of
China Decree No. 45) 2001
 Implementation Regulation on Drug Administration Law
(State Council Decree 360) 2002
 Regulation on the Management of Narcotic Drugs and
Psychotropic Substances (State Council Decree No. 442)
2005
 Regulation on the Management of Vaccine Circulation and
Preventive Inoculation (State Council Decree No. 434) 2005
 Special Regulation of State Council on Strengthening
Supervision and Management of Food Safety (State Council
Decree No. 503) 2007
 Management Methods on Imported Medicine (Trial) (State
Food and Drug Administration Order No.22) 2005
 Management Methods on Registration of Preparation in
Medical Institutions (Trial) (State Food and Drug
Administration Order No.22) 2005
 Management Methods on pharmaceutical Circulation
Supervision (State Food and Drug Administration Order
No.26) 2006
 Management Methods on drug recall (State Food and Drug
Administration Order No.29) 2007
 Management Methods on Medicine Registration (State Food
and Drug Administration Order No.28) 2007
 Notice of Ministry of Health Concerning Further
Strengthening Centralized Procurement and Management of
Medical Appliances (MoH [2007] No.208)
 Notice on Distributing Management Methods on Good Nonclinic Laboratory Practice(State Food and Drug
Administration [2007] No.214)
 Hearing Rules for State Food and Drug Administration
(Trial) (State Food and Drug Administration Decree No. 23)
2006
 Suggestions on Furthering Rectifying Price Order in the
Medicine and Medical Service Market (NDRC [2006]
No.912)

ii.
163




Notice on Distributing the Implementation Suggestions on
the Special Regulation of State Council Regarding
Strengthening Food Safety Supervision and Management
(State Food and Drug Administration [2007] No.541)
Notice on Strengthening Price Management in Medical
Institutions and Containing Medicine Price
(MoH〔 2008〕 No.6)
Notice of Ministry of Health General Office on Distributing
the Review System Arrangement (Trial) of Ministry of
Health on the Use of Class A Large Medical Equipment
(MoH [2008] No.8)
Notice on Strengthening Price Regulation of Medical
Institutions and Containing Irrational Increase of Medicine
Price(MoH [2008] No.6)
Public Health
iii.

Regulation on the Urgent Handling of Public Health
Emergency (State Council Decree No. 376) 2003
 Regulation on Vaccine Circulation and Preventive
Inoculation (State Council Decree No.434) 2005
 Regulation on AIDS Prevention and Treatment (State
Council Decree No. 457) 2006
 Nurses Regulation (State Council Decree No. 517) 2008
 Decision of the Central Committee of Communist Party of
China and the State Council Concerning Health Reform and
Development (Zhong Fa〔 1997〕 No. 3)
 Decision of the Central Committee of Communist Party of
China on Major Issues in Building a Harmonious Socialist
Society 2006
 Notice on Distributing Management Methods on Maternity
and Child Health Institutions (2006)
Long -term Development Plan
iv.
 10th Five-year Programme for Health
 11th Five-year Programme for Health Development
 11th Five-year Plan for State Food and Drug Safety
 11th Five-year Plan for Development of Chinese Traditional
Medicine
 China’s Health Human Resources Development Programme
2001-2005
 National Environment and Health Action Plan (2007-2015)
 Development Programme for China’s Rural Primary Health
Care (2001-2010)
 Action Plan for Nation-wide Farmers Health Promotion
(2006-2010）
 Action Plan for China’s Prevention and Treatment of AIDS
(2006-2010)
 Plan for Building and Developing Rural Health Service
System
164
Annex 10: Key Educational Indicators in 2006
Key Education Indicators
China
High income
Education
inputs
3.01
Gross
enrollment
rate
Education
outcome
% of public education
expenditure to GDP
Primary school pupilteacher ratio
Preprimary
Primary
Secondary
Tertiary
Adult literacy rate
5.4
Middle
income
4.3
East Asia
& Pacific
3.5
19
16
20
19
39
111
76
22
95(M) 87 (F)
78
101
101
67
99(M) 98 (F)
112
78
27
93(M) 87(F)
41
111
72
20
95(M)
(F)
Source: World Development Indicators 2008, Educational Statistics Yearbook of China, 2006)
87
165
Annex 11: Key policies and regulations in China Related to Resources
and environment objectives in China’s 11th Five Year Plan
Area
Pollution 
Control and
Circular
Eeconomy
Key relevant policies and regulations
 Law on Environmental impact assessment, 2003 (中华人民共和国环境影响评
价法, 2003)
 Rules on collection and management of pollution discharge fee, 2003 (排污费征
收使用管理条例, 2003)
 Law to promote cleaner production, 2002 (中华人民共和国清洁生产促进法 ,
2002-06-29)
 Management procedure for environmental protection of investment project, 1990
( 建设项目环境保护管理程序， 1990)


Law on water pollution prevention and abatement, 1984 (中华人民共和国水污
染防治法, 1984）
Air Pollution

Law on air pollution prevention and control, 2000 (中华人民共和国大气污染防
治法 , 2000-04-29)
Law on energy conservation, 2007 (中华人民共和国节约能源法 ,2007-10-30)
Water
Pollution

Solid Waste

Law on solid waste pollution prevention and control, 2004 (中华人民共和国固
体废物污染环境防治法, 2004-12-29)
Water

Resources
Efficiency


Law on water, 2002 (中华人民共和国水法 ,2002）
Rules regarding issuance of water uptake permit and water resources fee, 2006 (
取水许可和水资源费征收管理条例》,2006)
Regulation for the management of water uptake permit, 2008 (取水许可管理办
法 ,2008)

Forestry and
Eco-system



Decision of the State Council on Enhancing forestry Development, 2003 (中共中
央、国务院关于加快林业发展的决定)
Law on Forestry, 1984 revised in 1998 (中华人民共和国森林法, 1998 修订)
Law on prevention and combating desertification (中华人民共和国防沙治沙法,
2003-12-03)