Hamish McRae: China thinks red but starts to talk green

Is the Chinese leadership going green, or is it just running scared? Actually, I think it is a bit of both, though scared may be too strong. To judge by the reports from the 17th National People's Congress in Beijing this week, it is deeply concerned by the pressures that headlong growth has generated on the environment.

It is, however, even more concerned about rising inequality and, most immediately, the impact growth is having on prices, particularly of energy and food, and the threat to social cohesion this inflation creates.

The given point is that growth will continue to race along. The leadership is committed to that. Hu Jintao, the president, called for gross domestic product per capita to rise even faster over the coming years than had been planned at the previous Congress five years ago. "We will quadruple per capita GDP of the year 2000 by 2020 through optimising the economic structure and improving economic returns while reducing consumption of resources and protecting the environment," he said.

Quite how that balance will be achieved is, of course, opaque. But for anyone who visits China, what is happening in the economy is not opaque at all: the astounding growth is evident everywhere, or, at least, in the cities all over the country, but so are the costs. This Congress is interesting, in political terms, because it comes at the mid-point of the leadership cycle: it is starting the process to choose the next set of leaders who will take over in 2012.

But, aside from the point that the Chinese do their leadership planning in a more orderly way than our political parties do here, it seems to me that it is even more interesting in economic terms because the march to a market economy is much more advanced than it was five years ago.

To take just one fact: three of the 10 largest banks in the world, ranked by market capitalisation, are Chinese. Market capitalisation? Huh? Five years ago there were only a handful of Chinese companies whose shares were traded at all. Now, in outward appearance at least, China has most of the attributes of a western market economy, including a stock-exchange boom. So the political leadership has to cope with quite different issues from five years ago. The economy is larger, sure – about 70 per cent larger, and that is putting strain on the environment and resources. But it also much more "capitalist" in the sense that ownership of businesses is shifting from the state to the private shareholder.

This is privatisation on a mega scale. The world's most populous country, and one still ruled by a Communist party, is embracing the policies of Margaret Thatcher with an enthusiasm that we never quite managed to generate here.

Housing ownership is shifting, too, with young people buying their own homes, often in the new apartment blocks that are springing up outside every city. When I was in China last month I understood why. It was explained to me that one of the main sources of revenue for local authorities was to lease land to these new homeowners for building. So there is a financial incentive on cities to encourage more home ownership, a much stronger one than that on British local authorities when they were encouraged to sell off council housing to tenants, and one that increases the supply of housing, rather than just changing the ownership of existing stock.

In economic terms, all this makes sense: China is moving towards the proven global economic standard of market capitalism. But even though it is doing so with all sorts of checks, it is doing so very fast indeed. As a consequence, the inequalities and other rough elements of the market system are bursting out all over the country.

The visitor catches only a glimpse of these. The new wealth of the winners may be evident but the human cost to the losers is less so. For me, one of the sharpest memories last month was catching a glimpse of an elderly women in a state of collapse being carried by her family out of one of the few houses still standing on a building site on the outskirts of Shanghai, as new flats were springing up all around.

The greatest inequalities, however, are not between rich and poor within the cities, but, rather, between the western mostly rural provinces and the eastern and southern cities. China is experiencing the greatest population movement that has ever occurred, as millions of people flock from country to town in search of jobs.

In the medium term, the sort of growth that President Hu is seeking, if shared reasonably equitably, should bring most of the population up to an acceptable living standard. That has to happen not just for humanitarian reasons, but also for political ones. Having embarked on this long forced march to a modest prosperity for its people, the country can't really stop now without catastrophic political consequences. But the pace of growth also leads to huge strains, and coping with those strains has shot up the priorities.

The perception of the right way to cope with the pressure is, however, rather different in Beijing than it is in the West. I may be wrong, but I got the strong impression from talking with people in the financial community in China that concern about the environment will remain secondary to growth for the foreseeable future. Yes, there is concern about pollution, air quality and public health, and things will be done. The leadership will take on a greener tinge. But, ultimately, growth comes first. Only when pressure from growth shows itself in something like higher food and energy costs – which affect the mass of the population – will the leadership worry.

At the moment, food prices are running 18 per cent up year on year. Inflation as a whole is 6.5 per cent. True, urban wages are up about 12 per cent, so I suppose overall living standards are rising. But if people are forced to pay more for necessities, it may not feel like that. China is a net importer of food as well as an importer of energy, so it has become much more dependent on world prices. The truth is, it is scooping up so much of the world's resources that this upward pressure seems likely to continue.

The implications for the rest of us? Well, we have to learn to live with a resurgent China. It is surely in our self-interest to have a prosperous and contented China, adopting its version of market capitalism, than to have to cope with a poor and angry one. But the key issue – that it cannot follow exactly the high-consumption model of the West because there aren't the resources to support that – is unresolved.

We should all be encouraged by this emphasis of President Hu on the need to conserve resources and protect the environment, but we should equally be aware that growth comes first. We ain't seen nothing yet.