Outgoing Premier Wen Jiabao gave his administration mixed marks when reviewing his work over the past five years in his last annual government work report, which he presented at the opening session of the 12th National People’s Congress (NPC). Wen frankly acknowledged 11 failures, including a growing wealth gap, the deteriorating environment, an unbalanced economic structure, unsustainable growth and increasingly rampant corruption among officials.
Wen said China had achieved an average annual economic growth of 9.3% in the past five years, with the gross domestic product (GDP) rising from CNY26.6 trillion in 2008 to CNY51.9 trillion last year, taking China into second place globally, behind only the United States. The goals for 2013 are GDP growth of around 7.5%, CPI growth of around 3.5%, the creation of nine million more new jobs in cities and towns, and an unemployment rate for cities and towns lower than 4.6%.

Wen Jiabao also highlighted several remarkable achievements. In the past five years, China’s GDP increased from CNY26.6 trillion to CNY51.9 trillion and now ranks second in the world. It grew at an average annual rate of 9.3%. Government revenue went up from CNY5.1 trillion to CNY11.7 trillion. A total of 58.7 million urban jobs were created. The per capita disposable income of urban residents rose by an annual average of 8.8% while the per capita net income of rural residents rose 9.9%, narrowing the relative income gap. China hosted the Olympic Games in Beijing in 2008 and the World Expo in Shanghai in 2010. More than 18 million government-subsidized housing units were built. A total of 19,700 kilometers of new rail lines were built, of which 8,951 km were high-speed railways. 42,000 km of expressways were built, increasing the total length to 95,600 km. 31 airports were constructed. China now ranks first in the world in installed capacity of hydropower and wind power. Car ownership reached 21.5 per 100 urban households, an increase of 15.5 over 2007. China also restructured its industry as steel mills with a total capacity of 78 million tons were closed as well as cement plants with a capacity of 775 million tons. A total of 84.63 million rural residents migrated to urban areas, lifting the urbanization level from 45.9% to 52.6%. Government spending on education increased at an average annual rate of 21.58% to reach 4% of GDP in 2012. China’s R&D spending accounted for 1.97% of GDP in 2012, up from 1.4% in 2007. The country’s foreign trade grew at an annual average of 12.2% and China became the largest exporter in the world. Over the past five years China used USD552 billion of foreign investment. China’s outward direct investment (ODI) increased from USD24.8 billion in 2007 to USD77.2 billion in 2012, growing at an average annual rate of 25.5%. Direct transport and trade links between the mainland and Taiwan were established.

Premier Wen Jiabao said that leaders would no longer emphasize growth at all costs and would down-shift development to put priority on social programs. “We must make ensuring and improving people’s well-being the starting point and goal of all the government’s work, give entire priority to it, and strive to strengthen social development,” Wen said in his last address before stepping down. He put special emphasis on programs to boost the quality of life and called China’s current economic growth “unbalanced, uncoordinated and unsustainable”. “In response to people’s expectations of having a good living environment, we should greatly strengthen ecological improvement and environmental protection,” Wen said. “The state of the ecological environment affects the level of the people’s wellbeing and also posterity and the future of our nation.”

Legislation meant to lift farmers’ share of profits from land sales, which outgoing Premier Wen Jiabao vowed to introduce before the end of his term, has been left in the hands of the next cabinet. The 2013 draft Plan for National Economic and Social Development, submitted to the National People’s Congress (NPC), said the government would accelerate reform of rural land expropriation and formulate rules on compensation “as soon as possible”. Discontent over land compensation has become an increasingly important cause of conflict in rural areas.

Overall government spending will increase 10% to CNY13.8 trillion helped by a 50% increase in the coming year’s fiscal deficit. Defense spending will increase 10.7% to CNY720 billion – a slight slowdown from last year’s increase of 11.2%. The domestic security budget would rise 8.7%  to CNY769.1 billion, the third year in a row it will outstrip defense spending. China also set its inflation target for this year at 3.5%. The target is lower than last year’s, which was set at 4.0%. China’s actual inflation rate for last year came in well below that, at 2.6%. China’s incoming government will run a record budget deficit this year, underscoring its commitment to boost spending on social welfare and stabilize economic growth. The Ministry of Finance said it was planning a national deficit of CNY1.2 trillion this year, or about 2% of estimated gross domestic product (GDP). That represents a 50% jump on last year’s CNY800 billion deficit, which was about 1.5% of GDP. Most major developed countries run much higher deficits. Ting Lu, Chief China Economist with Bank of America Merrill Lynch, said the fiscal deficit target confirmed a “pro-active” fiscal policy and should be welcomed. Wei Yao, China Economist with Societe Generale, said: “This is supportive to pro-consumption expenditures (social security, health care and education), but not necessarily conducive to credit-fueled public investment.” Qu Hongbin, co-head of Asian economic research at HSBC, said he expected GDP growth this year would actually exceed the government’s target and come in at 8.6%. “Given external uncertainties, Beijing will make preservation of domestic demand growth a priority for this year,” Qu said.

Urbanization will be a major driver of economic growth. China plans to spend CNY40 trillion to bring 400 million people to cities over the next decade. “Urbanization is the biggest potential force driving China’s domestic demand in the years ahead,” Zhang Ping, Chairman of the National Development and Reform Commission (NDRC) said. Guidelines for urbanization would be launched during the first half of this year, Zhang added. The government hopes 60% of the population will be urban residents by 2020, up from  53.37% this year. The government wants to create a true consumer class that will help rebalance growth drivers away from the investment-heavy, export-oriented model.

The Chinese government has announced a restructuring plan, reducing the number of ministries and commissions from 27 to 25, and reorganizing several departments and agencies. The Ministry of Railways (MOR) is to be dissolved, as the country’s new leaders look to boost efficiency and combat corruption. The National Population and Family Planning Commission and the Ministry of Health will be combined, and the powers of food and drug regulators strengthened. The reforms mark the biggest reduction in ministries since1998. The number of permits for projects will also be reduced. The responsibilities of the Ministry of Railways will be split, its regulatory responsibilities going to the Ministry of Transport, with a newly created China Railway Corp responsible for building railways and managing freight and passenger services. The Ministry has faced numerous problems over the past few years, including heavy debts from funding new high-speed lines, waste and fraud. The government has pledged to open the rail industry to private investment on an unprecedented scale. Family planning will be transferred to the Ministry of Health, while population research is being transferred to the National Development and Reform Commission (NDRC). The Food and Drug Administration (FDA) is being elevated in status to Ministry level to give it added powers to end the lax enforcement of regulations that has led to repeated scandals over toxic medicines and tainted foods from milk to meat. The National Energy Administration (NEA) will absorb the State Electricity Regulatory Commission (SERC). China will also merge its two media watchdogs under the restructuring plan – the General Administration of Press and Publication (GAPP) and the State Administration of Radio, Film and Television (SARFT). The National Oceanic Administration (NOA), which already oversees marine surveillance, will also take over the Public Security Ministry’s coastguard patrols, the Agriculture Ministry’s fisheries patrols and the General Administration of Customs’ anti-smuggling efforts. A consultative body, the National Oceanic Commission, would be established to help formulate strategies for developing maritime resources. The restructuring plan still has to be approved by the National People’s Congress (NPC).

“We must press ahead with both economic reform and political structural reform, especially reform in the leadership system of our party and country,” Wen said at his annual press briefing following the closing ceremony of the yearly session of the National People’s Congress (NPC). “Reform has reached a critical stage. Without successful political structural reform, it is impossible for us to fully institute economic structural reform and the gains we have made in this area may be lost. The new problems that have cropped up in China’s society will not be fundamentally resolved, and such historical tragedies as the Cultural Revolution may happen again,” Wen told Chinese and foreign journalists at the Great Hall of the People in Beijing. He did not indicate what kind of reforms he had in mind, but stressed that they would have to be “gradually and orderly” and conform with “national circumstances”.

When asked about the case of Wang Lijun, the former Chongqing Vice Mayor who is under investigation, Wen said: “Over the years, successive governments and people in Chongqing made enormous efforts to promote reform and development and have achieved remarkable progress. The current party committee and government must seriously reflect on the Wang Lijun incident and the lessons from this incident.” Progress had been made in the investigation, Wen said, which would be handled strictly in accordance with the law. “We will give the people an answer to the results of the investigation and the handling [of the case], so that it can withstand the test of law and history,” he said. His remarks were seen as a rebuke to Chongqing Party Secretary Bo Xilai, who only hours later was removed from his post, although he apparently retains his seat on the Politburo. Bo Xilai has been replaced as Party Secretary of Chongqing by Vice Premier Zhang Dejiang, who also retains his post as Vice Premier.

Premier Wen Jiabao further remarked: “Since the founding of the People’s Republic of China, under the leadership of the party and the government, our country’s modernization drive has made great achievements. Yet at the same time, we’ve also taken detours and have learnt hard lessons. We have established the line of thinking and that we should free our minds and seek truth from facts and we have formulated the basic guidelines of our party. In particular, we’ve taken the major decision of conducting reform and opening up in China, a decision that’s crucial for China’s future and destiny.” The Premier also told the media he’s willing to make a trip to Taiwan as a tourist after his retirement. Wen said he placed hope on the next generation and had full confidence that they would do better than him.

Nearly 20 amendments have been made to the government’s work report, which Premier Wen had presented to the NPC Deputies on March 5. One major amendment is the inclusion of a pledge to “strengthen school safety management”, in addition to improving the safety of school buses. Other amendments included calls for the establishment of an ecological compensation mechanism to provide economic incentives for environmental protection and the enhancement of channels for the public to express their views. The CPPCC session closed on March 12 with 6,069 proposals being submitted to the government, of which 2,600 were related to economic matters. Some of them called for measures to increase the incomes of lower-class citizens and the establishment of annual salary increments. Some delegates called for underground banks that provide informal lending and fund-raising to be legalized. The budget report attracted the most ‘No’ votes in five years during the closing session of the National People’s Congress (NPC) on March 14. Among the 2,872 NPC deputies, 438 rejected the budget report. The number of ‘No’ votes for the government’s work report, presented by Premier Wen Jiabao, also reached a five-year high, with 90 deputies rejecting the document. The Procuratorate’s report received 393 ‘No’ votes this year – 41 fewer than last year, and the Supreme People’s Court’s report was rejected by 429 deputies, 46 fewer than last year.