"Toward Inclusive Economic Development in China"
Speech by
Haruhiko Kuroda
President
Asian Development Bank
At the China Development Forum 2008
23 March 2008
Beijing, PRC
Mr. President; Mr. Vice Premier; special guests, ladies and gentlemen: Thank you for giving me the opportunity to contribute to this important discussion.
China's rapid economic growth and development is unparalleled in modern history. Average annual GDP growth of more than 9% over 30 years, and average per capita GDP growth of more than 8%, has brought tremendous benefits for the poor and the socially disadvantaged.
Thirty years ago, China's ranking on the Human Development Index was low. China now is considered to have an "upper middle" level of human development. Meanwhile, the incomes of about 250 million people have risen above the government's poverty line.
Impressive accomplishments indeed. Yet, we cannot ignore some of the problems that have emerged as a result of rapid economic growth and development. These include issues such as macroeconomic and financial sector overheating in the short term, and the environmental damage and widening social disparities that need to be tackled from the medium-term perspective for sustainable growth. The country faces major challenges in improving urban and rural environments. Rising energy use contributes to environmental stresses and puts strains on the country's resources. Most of China's power generation comes from coal, a less efficient power source, and a source of the country's rising emissions of greenhouse gases. More effective management of the environment and improvement in energy efficiency will need to be pursued. As these and other issues will be discussed in later sessions, I would like to focus on the issue of economic and social inequality.
Thirty years ago China was a poor and underdeveloped country, but nonetheless a country with relatively low levels of income inequality. The reforms that started 30 years ago were initially focused on rural development, which was successful in raising incomes and bringing benefits to rural areas, where the poor were most concentrated. This strategy worked well in cutting income inequality between the rural and urban areas. Since 1990, however, inequality has been on the rise - inequality between the coastal and inland areas, between urban and rural areas, and within the urban population.
The Chinese government recognized these problems in its 11th 5-Year Plan and has shifted the development strategy toward a more inclusive and socially sustainable path. Inclusive growth means efficient, sustainable growth that generates new productive opportunities, especially in lagging areas, and improves access to such opportunities. It requires a level-playing field economically and socially so that everyone can participate in, and benefit from, the new opportunities. And it requires stronger, more effective and efficient social protection systems -- such as health, education, and pension.
The 11th 5-Year Plan emphasizes development in the inland regions, especially the central and western provinces and the old industrial areas of the northeast. These efforts should continue, focusing on balanced urban and rural development. Investments in rural energy, rural roads, water supply, and sanitation will improve services and promote economic growth. Here, nongovernmental organizations can help design projects and deliver services that meet the needs of the poor. Even with these improvements, however, labor migration from rural to urban areas will continue as the best income and job prospects will remain in urban areas. This requires significant development and modernization of urban infrastructure including in smaller towns. Investments in clean and efficient energy and transport, and in urban environmental management, are essential.
To level the playing field, more access is needed to financial and social services, and education and training. I understand the government has recently announced several important steps in this direction. The plan to provide free, universal, compulsory education will improve the economic prospects for the children of poor and low-income families. Making social security accounts transferable nationwide, as recently announced, will improve social services and increase people's mobility, thereby opening access to new jobs.
To further level the playing field for the poor and socially disadvantaged, spiraling health care costs must be curbed and the share borne by out-of-pocket expenditures must be lowered. State funding should also be shifted towards rural regions for primary health care and preventive services. Another area needing attention is better access to financial services for small and medium enterprises, to build their potential to create new jobs across the economy. Legal and regulatory reforms are essential to strengthen rural financial institutions and improve their abilities to serve rural residents, especially the poor.
Ladies and gentlemen, I believe China is clearly committed to social harmony and people-centered development. The establishment in 2007 of a rural minimum living standard protection system nationwide was a major step towards that goal. Continuing progress, however, will require increased Government investment, stronger strategic alignment of poverty-related programs, and effective operationalization of both development-oriented and safety net-based poverty programs. Fiscal reforms are needed to secure financial resources at both central and provincial government levels, and increase transfers to the poorer provinces, to reduce poverty and promote balanced development.
China has set a new historical standard for rapid economic development, growth, and poverty reduction. Being committed to building a harmonious society, China can transform this historical achievement into inclusive growth with balanced, sustainable economic development, where the benefits are felt by generations to come.
Thank you.
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