In early March, China's National People’s Congress will approve its 12th Five-Year Plan. This plan is likely to go down in history as one of China's boldest strategic initiatives.
In essence, it will change the character of China’s economic model – moving from the export- and investment-led structure of the past 30 years toward a pattern of growth that is driven increasingly by Chinese consumers. This shift will have profound implications for China, the rest of Asia, and the broader global economy.
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The 12th 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.
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But the emphasis on the Chinese consumer is likely to be the new Plan’s defining feature – sufficient, in my opinion, to boost private consumption as a share of Chinese GDP from its current rock-bottom reading of around 36 per cent to somewhere in the 42-45 per cent range by 2015. While still low by international standards, such an increase would nonetheless represent a critical step for China on the road to rebalancing.
It would also be a huge boost for China’s major trading partners – not just those in East Asia, but also growth-constrained European and US economies. Indeed, the 12th Five-Year Plan is likely to spark the greatest consumption story in modern history.