Collective Conscious

Good news for the Chi­nese worker:

The 12^th Five-​​Year Plan will do pre­cisely that, focus­ing on three major pro-​​consumption ini­tia­tives. First, China will begin to wean itself from the man­u­fac­tur­ing model that has under­pinned export– and investment-​​led growth. While the man­u­fac­tur­ing approach served China well for 30 years, its depen­dence on capital-​​intensive, labor-​​saving pro­duc­tiv­ity enhance­ment makes it inca­pable of absorb­ing the country’s mas­sive labor surplus.

Instead, under the new Plan, China will adopt a more labor-​​intensive ser­vices model. It will, one hopes, pro­vide a detailed blue­print for the devel­op­ment of large-​​scale transactions-​​intensive indus­tries such as whole­sale and retail trade, domes­tic trans­port and supply-​​chain logis­tics, health care, and leisure and hospitality.

Such a tran­si­tion would pro­vide China with much greater job-​​creating poten­tial. With the employ­ment con­tent of a unit of Chi­nese out­put more than 35% higher in ser­vices than in man­u­fac­tur­ing and con­struc­tion, China could actu­ally hit its employ­ment tar­get with slower GDP growth. More­over, ser­vices are far less resource-​​intensive than man­u­fac­tur­ing – offer­ing China the added ben­e­fits of a lighter, cleaner, and greener growth model.

The new Plan’s sec­ond pro-​​consumption ini­tia­tive will seek to boost wages. The main focus will be the lag­ging wages of rural work­ers, whose per capita incomes are cur­rently only 30% of those in urban areas – pre­cisely the oppo­site of China’s aspi­ra­tions for a more “har­mo­nious soci­ety.” Among the reforms will be tax poli­cies aimed at boost­ing rural pur­chas­ing power, mea­sures to broaden rural land own­er­ship, and technology-​​led pro­grams to raise agri­cul­tural productivity.

But the great­est lever­age will undoubt­edly come from poli­cies that fos­ter ongo­ing and rapid migra­tion from the coun­try­side to the cities. Since 2000, annual rural-​​to-​​urban migra­tion has been run­ning con­sis­tently at 15–20 mil­lion peo­ple. For migra­tion to con­tinue at this pace, China will have to relax the long-​​entrenched stric­tures of its hukou, or house­hold reg­is­tra­tion sys­tem, which lim­its labor-​​market flex­i­bil­ity by teth­er­ing work­ers and their ben­e­fits to their birthplace.

Boost­ing employ­ment via ser­vices, and lift­ing wages through enhanced sup­port for rural work­ers, will go a long way toward rais­ing Chi­nese per­sonal income, now run­ning at just 42% of GDP – half that of the United States. But more than higher growth in income from labor will be needed to boost Chi­nese pri­vate con­sump­tion. Major efforts to shift from sav­ing toward spend­ing are also required.

That issue frames the third major com­po­nent of the new Plan’s pro-​​consumption agenda – the need to build a social safety net in order to reduce fear-​​driven pre­cau­tion­ary sav­ing. Specif­i­cally, that means social secu­rity, pri­vate pen­sions, and med­ical and unem­ploy­ment insur­ance – plans that exist on paper but are woe­fully underfunded.

For exam­ple, in 2009, China’s retirement-​​system assets – national social secu­rity, local gov­ern­ment retire­ment ben­e­fit plans, and pri­vate sec­tor pen­sions – totaled just RMB2.4 tril­lion ($364 bil­lion). That boils down to only about $470 of life­time retire­ment ben­e­fits for the aver­age Chi­nese worker. Lit­tle won­der that fam­i­lies save out of fear of the future.  China’s new Plan must rec­tify this short­fall immediately.