Slowing GDP growth in China opens the door for much-needed reforms

Premier Li Keqiang predictably used the now ubiquitous phrase "the new normal" yesterday at the opening of the National People's Congress when announcing a slowed-down target for GDP growth this year of about 7 per cent. He and other officials have liberally made reference to the term before and they have every reason: the hectic, double-digit figures of the past are gone, replaced by a promised era of measured and sustained development. That will be a hard job given the scale and pressures involved and especially so with the economic uncertainties at home and abroad. Yet the best hope in negotiating the challenges lies in his signalled strong determination to push ahead with reforms.

China is undergoing its slowest growth in 24 years; last year, the figure was 7.4 per cent, close to the forecast 7.5 per cent. For the developed world, which since the 2008 economic crisis has counted on the mainland to help rejuvenate flagging economies and drive growth, the slowdown is viewed with trepidation. Many Chinese understandably would also prefer a return to the heady days of unparalleled development. But a juggernaut economy is neither easily managed nor sustainable.

Reforms are easier to implement and fine-tune when growth rates are less robust. High debt levels, a drop in industrial production and a slump in the property market are behind slower GDP growth rates. Deflationary pressures, employment concerns and the debt of local and provincial governments, property developers and industries are among troubling concerns. Li lowered the inflation target from 3.5 per cent to 3 per cent and pledged the creation of 10 million new jobs, the aim being for the jobless rate to not exceed 4.5 per cent.

Keeping everyday prices in check and ensuring jobs are priorities for any government. China has the added problems of fighting corruption and pollution and an economy suffering lost exports and investment. The People's Bank of China's two rounds of interest rate cuts since November are not long-term solutions; restructuring is needed to help lift consumption. Among priorities are reforms of state-owned enterprises and liberalising the banking system and financial markets.

Economically, the nation faces a difficult year. Booming economies provide no incentives for reform, but the downturn offers reason for firm implementation of changes. Li has thankfully expressed the government's resolve and there has to be whole-hearted support and cooperation.