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Regions and Countries Country Partnership Strategy Document
Country Strategy and Program Update 2007-2008: People's Republic of China
I. Current Development Trends and IssuesA. Recent Political and Social Developments1. The People’s Republic of China (PRC) is entering a new era with the 11th Five-Year Program (FYP) 2006–2010. This builds on a gradual shift since 2003 toward policies aimed at balanced, equitable, and sustainable development. This country strategy and program update (CSPU) is the initial response of the Asian Development Bank (ADB) to the PRC’s new policy, social, and economic environment; and is a preface of the new country strategy and program (CSP) 2007–2011 that is proposed for discussion by ADB’s Board of Directors in 2007. It also serves the purpose of consultation with stakeholders, and guides ADB operations before the new CSP is in place. B. Economic Assessment and Outlook2. The 11th FYP promulgated in March 2006 set indicative targets, rather than fixed targets, for standards of living, the environment, and the economy. The 2006 targets are to (i) manage gross domestic product (GDP) growth of about 8%, (ii) reduce energy consumption per unit of GDP by 4 percentage points, (iii) keep inflation below 3%, (iv) create 9 million new jobs and keep the registered urban unemployment rate below 4.6%, and (v) maintain a sound balance of payments. To achieve these targets, the Government will continue to manage growth and rebalance economic structure, deepen reforms to further open the economy, and strengthen social development to build a harmonious society. There is a stronger emphasis on rural development in the 11th FYP. The Government pledges to increase farmers’ incomes and enhance public services in the countryside. The Government abolished the agricultural tax at the start of this year, will eliminate all tuition and fees for compulsory education in rural areas starting 2007, and streamline local government bureaucracies. C. Implications for Country Strategy and Program3. Strong domestic investment and exports drove GDP growth of 10.9% in the first half of 2006, continuing a 4-year run of more than 9%. In the first 6 months, fixed asset investment grew by 29.8%, continuing its expansion from the second half of 2005. Although the rate is lower than the latest peak reached in early 2004, it is well above the official target of 18%. Exports and imports rose rapidly by 25.2% and 21.3% respectively, resulting in a $61.4 billion trade surplus for the first half of the year. Although consumer prices face upward pressure, inflation is expected to maintain a 1.6% growth due to oversupply in manufacturing and good grain harvests. The Government has implemented several policy measures to prevent economic overheating, such as tightening investment in the property market, raising benchmark-lending rates, and raising reserve requirements for commercial banks. The impact of these tightening measures is likely to be seen in the second half of the year. 4. GDP is projected to grow about 10.1% in 2006 and slow to 9% in 2007. Consumer price inflation is expected not to exceed 2% in 2007. The country's trade surplus for 2006 will surpass 2005's record to reach $150 billion. However, it is projected to narrow moderately in 2007 on an expected slowing in export growth. Higher spending is likely in 2007 to help reduce social pressures before the 17th party congress in autumn 2007 and the Olympic Games held in 2008, so the fiscal deficit is forecast to rise to more than 2% of GDP in 2007. Risks and uncertainties will come mainly from three sources: (i) increasing income inequality, (ii) environmental pollution and low energy efficiency, and (iii) weaknesses in the financial system. D. Implications for Country Strategy and Program5. The priorities set in ADB’s Medium-Term Strategy II (2006–2008)1 are in line with the 11th FYP. ADB’s strategy has five priorities: (i) catalyzing investment to improve the investment climate and expand private sector operations, (ii) strengthening inclusiveness through increasing investment to support rural development and social development interventions, (iii) promoting regional cooperation and integration, (iv) managing the environment, and (v) improving governance and preventing corruption. The 11th FYP validated ADB’s existing strategic objectives and operations in the PRC, stated in the CSP (2004-2006)2 approved in 2003. The forthcoming CSP (2007–2011), which is under preparation, will align ADB's country strategy with the PRC's 11th FYP. 6. ADB’s future operations in the PRC will emphasize rural development, environment, energy conservation, urban development, and regional cooperation. ADB will mobilize more resources and develop diversified instruments to meet the demand for balanced development among regions, and between rural and urban areas. ADB will try harder to provide greater knowledge in policy, law, and governance reform.
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