China Policy

Hu addresses the party congress in Beijing:

"Our growth is realized at an excessively high cost of resources and the environment," Mr. Hu told more than 2,000 delegates to the party congress in Beijing's Great Hall of the People.

In order to maintain expansion without using as many resources, China's growth in the future will need to be driven more by improvements in technology and productivity, Mr. Hu said.

He outlined a vision for a restructuring of the world's fourth-largest economy, one that would emphasize technology rather than heavy industry, services rather than manufacturing, and local consumer spending rather than exports.

This all sounds great, but it is difficult to attract technology when there is no IP protection. Their service sector isn't much to write home about either. The Chinese have no concept of service.

To ensure that more people benefit from economic growth, Mr. Hu said the government will raise minimum wages, expand health care and the social safety net and stimulate the creation of jobs in the private sector.

And he quotes the three things that are guaranteed to stifle job creation.

The emphasis on the environment could mean heavier financial penalties on polluters, as well as tax incentives for energy-saving technology, Mr. Zhao said, while the stated desire to boost household incomes could lead to lower personal tax rates.

Good ideas here. The Chinese who cannot avoid paying taxes and social insurance (the ones who work for foreign companies) are taxed at an exorbitantly high rate. Actually, the companies who pay their salaries have to pay most of the taxes and social insurance. If I hire someone for $6,400 annually, I have to pay $6,000 in taxes and social insurance on that person. It is a regressive tax, so as the person earns more, I pay a smaller percentage in taxes and insurance. But even at higher wages, I still pay close to 1/3.

Yet Mr. Hu offered no clear account of how he would resolve any conflicts between economic growth and preserving the environment and social harmony.

Always the trick isn't it. I don't envy him in that.

The local officials charged with carrying out Mr. Hu's policy can be caught between the two sets of priorities.

"The central government does require us to strengthen environmental protection," Chen Baogen, mayor of the city of Xi'an, said in a recent interview. But the local government also needs to continue fast economic growth, Mr. Chen said.

"Speeding up development creates jobs for more people and raises their income," which in turn brings the local government more tax revenue, he said. Local governments need that money to provide the higher standard of social services that have been promised. "Without money we can't pay for schools or improve health care," Mr. Chen said.

Welcome to the problems of every government on the planet. I suggest they start by discontinuing the current policy of every Communist official of stealing the revenues that do come in. In the aggregate, that would leave a lot more money in the public coffers.