It does not take much to shift the emphasis between economic reform and stabilising growth in the mainland economy. This is a balancing act by Premier Li Keqiang to maintain the minimum rate of growth needed to keep the jobless rate within acceptable limits while rebalancing the economy towards a more sustainable model. We have had the latest example in the space of a few days. After economic growth slowed in the second quarter and exports fell in June, Li assured provincial leaders recently that Beijing would stay within lower limits on growth and employment.
A Xinhua commentary elaborated that the government's lower limit this year was for an average 7.5 per cent growth, in line with the official target; that to ensure growth until 2020, any speed below 7 per cent was "not allowed"; and that according to an "authoritative" official estimate, growth could not slide beneath 7.2 per cent if the government wants to keep the urban jobless rate at about 5 per cent. In the absence of reliable jobless data, this reflects reliance on GDP growth as a policy reference.
Then came the latest snapshot of a slowing economy in the form of a manufacturing survey - the flash HSBC/Markit Purchasing Managers' Index for July. It showed output, employment and new orders all falling at an accelerating pace and the employment sub-index sliding to its weakest since the depths of the global financial crisis in early 2009. The latter finding tallied with a job-market survey by a private firm, Nielsen, showing consumers' perceptions of job prospects fell in the second quarter, especially in second-tier cities.
Within a day Li held a State Council meeting to announce a raft of fiscal and investment measures that flagged a new approach by the leadership to dealing with the slowdown. New measures include exempting companies with monthly sales of less than 20,000 yuan - millions of enterprises employing tens of millions - from value-added and sales taxes, reducing taxes on exports and allowing private capital to invest in railway construction in underdeveloped regions.
Li is trying to maintain the momentum of reform while stimulating sluggish growth. Instead of the time-honoured but ultimately unsustainable response of spending more money on wasteful infrastructure projects, he is making it easier for small enterprises to access finance and eased their tax burden. He is doing the right thing by the employment market because it is small to medium enterprises, rather than the state sector and multinationals, that create jobs.