China's 12th Five-Year Plan (2011-2015) for national economic and social development has been applauded widely both at home and abroad. The plan calls for an annual growth rate of 7 percent from 2011 to 2015 but, as Premier Wen Jiabao said, the aim is to achieve a "high-quality and efficient annual growth rate".

China has been growing at an average annual rate of 10 percent since the reform and opening-up were launched in the late 1970s, which has helped lift hundreds of millions of people out of poverty. This is a remarkable achievement for the world's most populous country.

But despite all this the Chinese leadership have been sober-minded and have always kept in mind the challenges ahead. The challenges for China are many, but seven of them are very important.

The most pressing problem for the authorities is inflation. But controlling inflation is a difficult task, especially because of rising prices of the goods that China imports such as oil and some food products. Inflation is running at a pace of 5 percent a year, but food prices are rising at double that rate. China needs to increase food production, and raise as well as modernize its agricultural productivity, which in turn will improve the living standard of its farmers.

Second, to achieve high-quality and efficient economic growth, the country has to ensure that its economic growth does not harm the environment, and causes less pollution and reduces contamination. To achieve that goal, the Chinese government has vowed, for example, to reduce its carbon emission for every unit of GDP by 40-45 percent by 2020 from the 2005 level. Using energy resources more efficiently is important not only for China, but also the whole world. It is important also because China is one of the highest carbon emitters in the world, even though its per capita emission is still very low.

Third, the country has to reduce the widening income gap to maintain a stable social environment. The income gap has been widening over the last few years. For instance, its Gini index has risen from 0.30 in the year before the economic reform began to about 0.48 (the larger the number the more unfair the national income distribution). According to Forbes magazine's annual list of the world's richest people, the number of billionaires in China doubled to 115 last year. On the other hand, scores of millions of people in China earn still less than 1 or 2 dollars a day.

Fourth, several measures, like increasing the tax rate for people with large income, could be taken to achieve an economic growth that will narrow the income gap as well. Also, the hukou (house registration) system could be changed to allow free mobility of people from rural to urban areas and make it easier for them to settle down in a place of their choice.

People do move from rural to urban areas now but legally, they cannot become urban residents or enjoy the benefits, such as buying a house, getting their children educated or enjoying other civic amenities, available in cities. Restricted mobility of people prevents the narrowing of income disparity, because urban residents earn on average two or even several times more than their rural counterparts.

Fifth, to raise the living standards of rural residents, especially of people engaged in agriculture, the authorities have to devise a way to enhance their rights over the land they till. As long as farmers' rights over land can be easily infringed upon, they will not invest in their farms. As a result, agriculture cannot be modernized and productivity cannot be raised. This indeed is a delicate issue, and the government has to find the most harmonious way of resolving it.

Farmers are still the single largest group of people in China. But their income is among the lowest in the country. So without improving their living standards and increasing their income, the authorities cannot expect to develop a fair and harmonious society.

Sixth, narrowing the wealth gap is important especially to guarantee that everyone gets a share of the fruits of economic development. Social stability can be assured only if people feel they are part of the country's success story.

Last, China has achieved unprecedented economic growth in an open world economic system that has also benefited the rest of the world. China has enjoyed access to open markets abroad, and in return the rest of the world has benefited from the inexpensive goods made in China. But now China should gradually reform its currency exchange policy, because it will, among other advantages, give it easier access to inexpensive goods made abroad.

China has become the world's second largest economy and, in a sense, has the responsibility of keeping the world economy growing, particularly because industrialized economies in Europe, and Japan and the United States are struggling to realize smooth economic growth. There can be no better gift for the Chinese people and their counterparts across the world than a high-quality and efficient annual economic growth rate in China.

The author is a professor of economics at San Marcos National University in Lima, Peru.

(China Daily 03/29/2011 page9)