China’s leaders seem to be wrestling with the issue and if the resultant stimulus packages are a measure, it is obvious that the different factions in the Politburo have not agreed yet on a common ‘new deal’ for its people affected by the end of a long running export-growth strategy.

China’s economy is now facing sharply rising unemployment and steep falling exports. At this crucial juncture, China’s executive vice premier, Li Keqiang, one of the next generation leaders, has emerged beside his boss Wen Jiabao, as a steady hand in skilfully steering the ship of China’s economy.

Even before the government announced pumping RMB4 trillion into the economy, Li had already reached for bold solutions in early November. He vowed to jump start domestic demands as the engine of growth by freeing up spending power and boosting consumption. ‘Government-funded housing projects and basic medical services will be the two areas we will focus on to boost domestic consumption,’ Clearly, expensive housing and high medical costs are taking a toll on the economy: millions of Chinese are saving large portions of their income rather than spending it.

Li Keqiang has emerged as one of the more visible crusaders pushing to bring about a more balanced growth pattern against the old model where investment and exports dominate.

But will he succeed?

It depends. When the massive stimulus package was announced on 9 November, it had seemed that infrastructure and easy credit building projects continued to dominate, but in late November, Chinese President Hu Jintao threw his weight behind Li Keqiang. In a 27 November press conference held by National Development and Reform Commission (NDRC), it was announced that only RMB180 billion would be set aside to build highways, railroads and the power grid. The lion’s share: RMB1 trillion for places worst hit by the earthquakes. Next up: RMB370 billion for improving rural household living and rural infrastructure such as electricity, safe drinking water supply, and roads. Third came RMB350 billion for less polluting power projects such as nuclear power plants. Fourth, cheap rent and affordable government built housing projects to raise the level of housing affordability. Yet the stimulus package only earmarked RMB40 billion for medical care and education, far too little a proportion to boost domestic consumption.

Since then, the currents have shifted. A 9 December NDRC announcement declared that RMB1.8 trillion is going to the infrastructure projects, railroads, airports and highway buildings. Infrastructure projects are without a doubt the big winners. The turnaround in policy generated such heat that Premier Wen Jiabao on 13 December during a visit to Japan, had to reiterate that it was all integrally connected, and as a vast country, China needs infrastructure building for its long term development. As a comparison, he cited that the total railroads of China are only half that of the US.

The fact that only one per cent of China’s new RMB4 trillion (US$586 billion) is earmarked for health care and education sectors must have been very frustrating to Li Keqiang’s group. In early November he had pledged to increase government investments to ensure every Chinese citizen would get basic medical care. It is no secret that health care and education are the two largest out-of-pocket expenses for most Chinese. Health care cost took up half of household incomes in 2006, a study by Hu Shanlian of Fudan University in Shanghai found. And World Bank data show public spending in China on health care accounts for only 1.8 per cent of GDP, compared with the global average of 6 per cent.

Why is medical care and education always last in priority in public spending? For some critics, it is simply because China’s decision makers do not have to stand for elections. But the fact is even the NDRC itself sees reforming the economic growth model and promoting domestic consumption as a long-term goal. Still, others are not convinced. ‘If we let the economic express of China follow the same old tracks instead of reforming it, we will inevitably face a direr climate next time,’ warned the China Economic Observer. If so, Li Keqiang, who wants to do both: weathering the world financial meltdown and changing China’s economic model, has at best only won half the battle.

And all is not lost yet. President Hu Jintao won a consensus in the same conference to sustain growth fundamentally through efforts to ‘redistribute the national income by means of raising the household income levels and expanding the ultimate consumption demands in the main.’

For that to happen, China has to put job creation and people’s livelihood on top of the agenda. According to Premier Wen Jiabao, RMB70 billion is already set in the budget next year for the provision of basic medical care for the urban and rural people. In addition, the peasant subsidy will be raised above the existing RMB103 billion allocations, the salaries of primary and secondary school teachers will be raised, and retirement pensions will be increased every year for 6 years. For now however, the faction that emphasises infrastructure building and a return to easy credit lending to the property market — spend your way out of the crisis — seem to have prevailed.

Until this very moment, the picture has remained unchanged for the Chinese economy. As Li told 2010 World Economic Forum in Davos that China was “excessively reliant on investment and exports”, nothing has changed. In 2010, fixed-asset investment jumped nearly 24 percent to 27.8 trillion yuan (US $4.2 trillion), amounting to 70 percent of China’s GDP. Of this, investment in the high-flying real estate sector led the way, surging by one-third to over 4.8 trillion yuan(US $ 734 billion), twice its growth in 2009. Indeed, as Premier Wen Jiabao himself repeatedly pointed out last year: without any significant political reforms, the economic structural reforms to narrow the gaps between rich and poor and a shift to domestic consumption growth pattern can never be realised.

Wang Tai Peng is a commentator on Chinese affairs for Hong Kong newspapers and media, a graduate of the ANU and is currently based in Canada.