Now that the 11th Five-Year Plan (2006-10) is being implemented, four major policies of strategic importance will be carried out in the coming five years.

These are building a new socialist countryside, achieving balanced development among different regions, switching to a cyclic economy and encouraging a culture of innovation. While sounding different, they are all interlinked, and all key to the success of the plan.

The first issue is the construction of a new socialist countryside.

With China's economy expanding fast, some contradictions are building up and need resolution. The construction of the new countryside is expected to offer a way out.

To begin with, it will help shorten the income gap between urban and rural areas.

The ever-widening income gap betweencities and countryside is an important factor in explaining the huge stockpiles of goods sitting unsold in warehouses.

In the new countryside-construction drive, the government will invest mammoth amounts of capital in rural infrastructure construction such as roads, water conservation projects and education, social security and healthcare. This is expected to promote farm production, lessen farmers' financial burden and increase their income. All this, in turn, will redress the triple income disparities between rural and urban areas and between different regions. In this sense, the construction of a new countryside constitutes the prerequisite to ushering in a harmonious society in the nation as a whole.

Also, the drive will relieve the acute problem of over-capacity of production.

In the course of investment-driven economic growth, many sectors have acquired production capacities that outstrip the actual needs. This pent-up productive power has to find an outlet. Development of the vast rural areas, where the majority of the nation's huge population lives, will help absorb this production-capacity glut.

The second strategy is about balanced development between different regions, of which the central area is the focus.

Previously, development of the eastern coastal areas and the western parts of the nation, as well as the revival of the traditional industrial base in Northeast China, have been emphasized in sequence. Now the development of the central area is being championed because the central authorities would not like to see this vital part of the country "cave in" economically.

As a matter of fact, the economy in this area is exhibiting worrying symptoms.

The 2004 per capita GDP in this area, for example, was only 86 per cent that of the western parts of the country, 52 per cent that of Northeast China and 38 per cent that of the eastern coastal areas. In this context, the revival of the central area is the precondition to harmonious regional development advocated by the 11th Five-Year Plan.

Moreover, Jiangxi, Hubei, Hunan, Anhui, Henan and Shanxi provinces are the nation's major grain-producing bases and also the place where the problems of "agriculture, the countryside and the farmers" concentrate. Without resolving the "cave-in" problem in the central area, there would be no way to address the issues, which the central authorities have such iron-clad determination to settle.

Fortunately, the exterior climate is favourable to the revival of the central area. In the eastern coastal areas, for example, the phase in which the economy is powered by low-cost labour force is nearing the end and the labour-intensive industries in this region need to be moved to other areas. The central area seems an ideal venue for this shift, taking into account its geographical advantages and fairly high-quality labour force.

It may be said that the successful industry transfer from coastal areas to the central area will determine whether China's industrialization drive can continue at an accelerated pace or not in the following decade.

By the end of 2005, a wealth of theses and books on the cyclic economy had been published in China. A question arises: Why is there a "cyclic economy" craze in the country?

To begin with, China faces severe challenges posed by the possible harsh reality that it could be denied sustainable development.

In theory, sustainable economic progress contains roughly three aspects: The economy keeps growing; resources are constantly in sound supply and the environment remains unfailingly clean.

It seems that people can only choose growth at the expense of the environment, and vice versa, in the scenario of traditional economics. And economies of many countries succumb to the fate of causing pollution first and tackling it second. A cyclic economy, however, can make up for the defects of traditional economics and is, therefore, favoured by many nations.

In addition, the requirement that wealth and GDP grow hand in hand and that the economy and the environment develop in harmony explains the cyclic-economy craze.

The Chinese economy has been growing fast over the last 27 years but people's livelihoods have failed to keep up with this pace. Worse yet, the environment is deteriorating at an accelerated pace.

According to the estimates of the World Bank, environmental pollution and ecological damage took 15 per cent away from the world's total GDP in 2003 in the scenario that year's total GDP grew by 10 per cent. In other words, 15 cents had to be deducted from each dollar earned.

This kind of overdrawing on resources does not happen in the cyclic economy due to the important principle of "generational fairness," meaning nobody has the right to make his or her own gains at the cost of the future.

Although the cyclic economy can achieve balance between resources, the environment and the economic growth at very small cost, there still has to be a price. There will still be the consumption of resources that cannot be renewed. In addition, waste is continuously being produced and discharged, even though the amounts are reduced sharply.

Inventions and innovation are therefore called for to make the economic operation as a whole much more efficient.

Innovation of course has other meanings.

First, innovation is the decisive factor for a country's economy and constitutes the core of a nation's competitiveness. Second, innovation assures that the economy grows steadily and smoothly in the long term. The high-speed growth of the Chinese economy over the last 27 years or so has been driven by low-cost labour and huge capital, resource and energy input. The cost will rise and the advantages will gradually fade away if we continue along this line of development.

Long-term high-speed growth needs the driving of a powerful engine innovation.

The sustainable development-orientated new concept will bring about major changes in the Chinese economy, and society as a whole. And we estimate that the programme will show initial effects around 2020 when the goal of bringing about a new countryside will have been achieved and the country's economic strength will be significantly greater than today.

Source: China Daily; By Gao Huiqing, Hu Shaowei and Qian Minze, senior economists with the State Information Centre.