China’s 12th Five-Year Plan, adopted last month, provides the road map it will follow. Yet it is not really a plan; rather, it is a coherent interconnected set of policy priorities to support the economy’s structural evolution – and thus to maintain rapid growth – over the period of the plan and beyond.

　　So a great deal is at stake, both internally and externally. Growth in the world’s emerging economies now depends on China, the main export partner for a growing list of major economies including Japan, South Korea, India, and Brazil.

　　There are at least five important interconnected transitions embedded in China’s new Five-Year Plan:

　　• Changing the economy’s growth model or supply side structure, as labor costs rise, global market shares become large enough to limit expansion, and advanced countries’ growth momentum slows for an unknown period of time;

　　• Rebalancing demand, from investment and exports to domestic consumption;

　　• Accommodating a rapidly urbanizing population, and ensuring that incentives are structured to bring about as orderly a process of social change as possible;

　　• Building the institutions necessary for achieving inclusiveness and equal opportunity;

　　• Assuming international responsibility for stability, growth, and sustainability, including tackling climate change.

　　The challenge for China is implementation, which means reform and systemic change. International experience suggests that the balance between planning and markets shifts toward markets as countries becomes richer. The structural evolution that underpins growth will increasingly be driven by market opportunities and entrepreneurial initiative. A huge number of new businesses need to be created.

　　To support this shift, much is required. Labor-intensive industries in the tradable sector must be allowed to decline. Many companies may survive, but only by moving to different parts of the global economy or up the value-added chain domestically: up or out. A rising nominal and real exchange rate can propel structural change; a weak-currency policy is a trap.

　　The financial sector must be developed in order to create more savings options and supply credit and equity capital efficiently to new and growing businesses, which China needs in order to attract the rural population to cities (even as export sectors move up the skill and value-added hierarchy). Many of these jobs will be in the domestic, urban, non-tradable service sector.

　　But urbanization faces another obstacle: the hukou system of residency permits, which restricts mobility and bars migrants (an estimated 200 million people) from becoming full-status urban citizens. Chinese officials’ reluctance to eliminate hukou quickly reflects their observation of the social consequences of rapid or unbalanced urbanization elsewhere, though problems caused by internal migration in other countries typically reflect the absence of opportunity in rural areas, not the attraction of opportunities in urban areas.

　　As the scope of the private sector expands, legal structures and policies that support competition, entry and exit, market openness, intellectual property, and social safety nets will also be needed. The move to higher-value-added links of domestic and global supply chains will require more effective education and expanded investment in the economy’s intellectual and technological underpinnings. The balance between technology imports and domestic innovation will continue to shift steadily toward the latter.

　　The Chinese public sector has a huge balance sheet, including land, a vast array of infrastructure, massive foreign-exchange reserves, and major equity positions in state-owned enterprises (SOEs), which account for more than one-half of net fixed assets and one-third of profits in the corporate sector. In all countries, these assets should be held in trust for citizens and deployed in pursuit of economic and social development. China has an exemplary record in this area. Unlike most countries, China has not struggled to get public-sector investment up to levels that support sustained high growth.

　　But there are now issues. Investments are justified and support economic and social development when they have high private and social returns. Elements of the investment portfolio in the public sector and the SOEs are beginning to fail this test.

　　To be fair, given the SOEs’ legacy costs (stemming from their responsibilities for social services and insurance), together with their financial distress in the 1990’s, it made sense for a while to let them keep their retained earnings and not place additional claims on them through the government budget.

　　No longer. If SOEs’ reinvested income is not subject to a high return criterion, growth will eventually slow. The portion that falls short needs to be redirected to higher-return investments in either the public or private sector, to household income, or to essential public services and social insurance.

　　The SOEs compete in product and labor markets with the private sector, but less so in capital markets. While wages and incomes are rising now and appear to have broken the iron grip of the surplus labor pool, the growth pattern requires this structural demand-side shift toward more disposable income, greater government consumption, and high-return investment. We suspect but do not know that consumption will increase. Properly recycled savings, including corporate profits, could go back mainly into high-return public- or private-sector investments. Both contribute to aggregate domestic demand, and the structural shifts on the supply side will be driven by the “right” mix of aggregate demand, with the low-return component on the investment side removed.

　　Thus, the Five-Year Plan’s goal is to recompose (not expand) aggregate demand in order to sustain growth and avoid the diminishing-returns trap that is the principal risk of China’s current investment pattern. Changing that pattern will require a restructured financial system that allocates savings efficiently, based on fiscal and capital-market discipline and corporate-governance reform. Designing that system will be an important part of achieving the high-return investment and expanded consumption that Chinese leaders want – and that China’s economy needs.

　　中国刚通过的“十二五”规划，为其发展轨道制定了路线图。不管从其内部还是外部考虑，一场巨变都即将开始。在新的“十二五”规划中，至少体现出五个重要转变：

　　第一，随着劳动力成本的上涨，全球市场的份额已达到足以限制进一步扩张的程度，以及在一段长短未知的时期内发达国家的经济增长动力放缓。因此，中国的经济增长模式及供应端的结构会出现转变。

　　第二，从投资、出口到消费，重新实现需求的平衡。

　　第三，接纳迅速城市化的人口，确保一系列激励机制已经建立，能够确保类似于老龄化这样的社会变化过程的平稳度过成为可能。

　　第四，为了提供非排他且公平的机遇，建立一系列必要的机构。

　　第五，在维护稳定、增长以及可持续发展方面承担国际性责任，包括应对全球气候变化。

　　对于中国而言，其挑战在于如何将其贯彻实施。为了支撑这一改变，必须允许贸易部门中一系列劳动密集型产业的衰落。

　　这些行业里的很多公司可能仍会生存下来，但可行的方式只能是通过转移至全球经济的不同区域，或者是升级至国内的高附加值生产链条。也就是说，要么升级，要么出局。名义汇率和实际汇率的不断升值能适当助力结构转变，而疲软的货币政策则是一个陷阱。

　　为创造更多的储蓄选择，且针对新型及发展中的一系列行业有效地提供信用及实体资本，金融部门应该变得成熟起来。这种转变是中国所需要的，以便吸引农村人口向城市转移，尤其是在出口行业向技能和高附加值的行业转移的大背景下。

　　但中国的城市化还面临着一个难题——城市户口体系。这一体系限制人口流动，给农民移民成为正式城市居民设定了一系列的限制。

　　中国官员们在迅速取消户口制度方面所表现出的不情愿，其所反映出来的，是他们对于其他国家的城市化过程中所表现出来的一系列社会后果的认识。在其他国家，内部移民所导致的一系列问题反射出的是农村地区缺乏机会，而不是城市地区里的一系列机会的吸引力。

　　随着私营部门规模的扩大，法律及政策体系支持竞争、市场准入、市场退出、市场公开及社会保障体系等方面的法律体系需要健全。

　　要实现向国内及全球经济供应链条中高附加值环节的转变，将需要的是更加有效的教育，以及在经济的产权和技术领域里的加大投资。

　　中国的公共部门拥有庞大的资产负债表，健全的基础设施，大量的外汇储备及对于国有企业的绝对掌控地位。在所有国家，这些资产应为了服务人民而掌握在信托基金手中，其行为应服务于经济和社会发展的目标。

　　而在这一领域，中国是一个例外。与绝大多数国家不同，中国并没有努力让公共部门的投资水平达到可以支持持续高增长的水平。

　　只有当一系列的投资能取得一系列高额的私人和社会回报时，这些投资才是合理的，才能支持经济和社会的发展。公平地说，考虑到国有企业的遗留成本，加上其在1990年的糟糕表现，让它们能留存收益且不通过政府预算使其承担更多的责任，在一段时期内保持这种局面是合情合理的。

　　然而，情况已不再是这样。如果国有企业的再投资收益不受高回报率的制约，最终增长的速度将会放缓。没能满足一系列要求的这部分资源，将会被重新投入到能获得更高回报率的投资领域里。

　　为维持经济增长且避免出现风险，“十二五”规划的目标是将庞大的总需求重组。而改变旧有的格局，则需要重建金融体系。

　　新体系将以财政和资本市场准则的建立以及公司治理为基础。新体系可以有效配置储蓄资金。设计这种新体系将成为实现高回报率投资和扩大消费目标的重要手段，而这也正是中国经济所需要的。