By 2015, China will be a fairer, greener society. Rising incomes will have boosted consumption and industry will have clambered up the technology ladder.
That's one way of reading Premier Wen Jiabao's annual "state of the nation" work report on Saturday to China's largely ceremonial parliament and an accompanying plan for 2011-2015.
"I was very impressed with the seriousness of the government to rebalance the economy by promoting consumption and changing the structure of industry," said Tomo Kinoshita, an economist with Nomura in Hong Kong.
But on a less generous interpretation, reading between the lines of what Wen did not say, the world's second-largest economy in 2015 will remain addicted to capital spending; the state will not have eased its iron grip on the financial system; and China's external surplus will still be a global bone of contention.
Stephen Green, head of economic research for Standard Chartered Bank in Shanghai, said it was a case of the glass being half full or half empty, depending on your view.
"There's absolutely no sign that the percentage of investment in GDP is slowing. And there are no signs of liberalization of the service sector to allow the private sector to take a bigger share of the economy," Green said.
He said Wen gave no pointer to any significant efforts to change the way income is distributed. Labor's low share of the national economic pie is the root cause of the puny contribution of consumption to China's GDP.
A linked problem is that powerful state-owned companies have amassed huge savings but are fiercely opposed to handing over bigger dividends to the state to help finance social spending.
With such imbalances persisting, Green expects China's current account surplus to remain at 5-6 percent of gross domestic product in the next few years -- a recipe for continued irritation in Washington and Brussels.
MIXED BAG
Western financial firms hoping for liberalization of China's state-dominated banking system and immature capital markets -- a major reason why too much capital is badly allocated -- will have been disappointed by Wen's weekend speech.
So will reformers counting on an overhaul of China's half-century-old household registration system to permit migrant workers to settle in towns with their families and swell the ranks of urban consumers enjoying more productive jobs.
But Kinoshita countered by pointing to plans to increase the minimum wage by at least 13 percent a year, or 84 percent over the five years of the plan.
"This would really increase the level of migrant workers' incomes, which is good for consumption," he said. "As long as China really succeeds in promoting consumption we can expect a lower current account surplus and this should reduce concerns about the adequacy of the exchange rate level."
PRIORITIES
The five-year plan is more of a sketch than a blueprint, an indication of which way the economy is headed rather than a compilation of must-hit targets for Communist Party planners.
"What I'm focused on is what they are highlighting as priorities where they're going to spend money, and I have no doubt that they will spend the money," said Andy Rothman, CLSA's macro strategist in Shanghai.
Take Wen's goal of building 10 million homes this year alone for people on lower incomes and 36 million over 2011-2015.
The building frenzy aims to placate citizens angry that property speculation has priced them out of the non-subsidized housing market.
Rothman said he was skeptical the 10 million figure would be met. "We'll never really know. But I'm also completely convinced that they're going to spend a hell of a lot of money on affordable housing this year," he said.
Other goals illuminate China's ambition to become more of a knowledge economy driven more by urban services.
The urbanization rate is slated to rise 4 percentage points by 2015 to 51.5 percent, while the share of services in GDP will also rise by the same margin to 47 percent.
Spending this year on education -- long a weak point in China -- will jump to 4 percent of GDP this year from 3.2 percent in 2010, while outlays on research and development are projected to increase to 2.2 percent of GDP by 2015 from 1.8 percent in 2010.
TRACK RECORD
As well as targeting a further 16 percent cut in energy usage per unit of GDP, China is promoting seven strategic industries that it wants to make up 8 percent of GDP by 2015.
They are energy saving and environmental protection; next generation information technology; biotechnology; new energy; new energy vehicles; high-end equipment manufacturing; and new materials.
The sensible aim is for these higher-value industries to replace jobs in low-value sectors such as light manufacturing and textiles that will become uncompetitive as the yuan's exchange rate appreciates and the cost of labor and other inputs rise.
China's strategic emphasis on "indigenous innovation" raises the prospect of friction with the West if Beijing tries to go it largely alone in these new areas.
But Kinoshita said Chinese firms would be unable to hit the Communist Party's goals without importing Western technology.
"Foreign companies need to prepare for tougher competition in these areas. But they're also likely to find opportunities: the Chinese market will be very attractive given expectations that the government will provide subsidies and tax incentives to attract foreign direct investment in these areas," he said.
The Communist party controls the commanding heights of China's economy. It has a tremendous capacity to mobilize resources in pursuit of its political goals. So although Wen's annual work report and five-year plan are mainly for domestic political consumption, the world should not ignore them.
"When they publish a five-year plan you can look at it with a very jaundiced eye and say how can they possibly achieve all this? But the last several times, to a significant extent, they've managed to pull it off," said Rothman at CLSA.