Ambitious GDP targets will still dictate Chinese policy, no matter what the cost
Cary Huang says this feature of a centrally planned economy is set to stay, as party leaders prioritise a political agenda to legitimise their rule by pursuing the ‘Chinese Dream’
The main focus of the upcoming annual session of the legislature, the National People’s Congress, is on two components: a state-of-the-union report and China’s next five-year plan.
At the centre of the two documents that will be presented – the 2016 government work report and the 13th five-year plan – will be economic growth. Premier Li Keqiang (李克強) will talk about how his government plans to achieve a growth rate of 6.5 per cent to 7 per cent this year and an average annual growth of 6.5 per cent for next five years to 2020.
Such targets will dictate the government’s economic and social policies.
For years, economists and some liberal-minded officials have called for Beijing to abandon the national gross domestic product growth target, saying it is a key characteristic of a Stalinist-style command economy and runs counter to a market-based one.
In the past, setting such a target may not have made much difference. For all but one of the years between 1992 and 2013, China’s growth was above target, often by a big margin. However, the economy has missed its target for two consecutive years now, achieving 7.3 per cent growth in 2014 and 6.9 per cent in 2015, against the 7.5 per cent and 7 per cent targets respectively.
Most economists believe that the new targets will be unattainable, in view of the fact that last year’s growth was achieved with heavy-handed state intervention and policy support, including newly approved infrastructure projects estimated to be worth 8-10 trillion yuan (between HK$9.8 trillion and HK$12.2 trillion at exchange rates then), as well as credit and fiscal expansion.
China’s slowdown is a structural inevitability, as decades of cutthroat growth – fuelled by exports and driven by state-led investment – have been achieved at great cost, leaving in its wake environmental damage, deteriorating economic structures and an ever-widening rich-poor gap.
Some economists suggest that the government should at least lower the growth rate to 6 per cent or 5 per cent. This does not mean the end of the China story, they say; instead, it represents the pursuit of healthy and sustainable goals, allowing policymakers to focus on important issues such as employment, environmental and ecological protection, and social welfare, while letting the market take care of economic growth. They have warned of the great risks in sticking to high targets: it could mean more reckless government borrowing and spending, and thus more debt, which is already approaching 300 per cent of GDP, according to McKinsey. If the bubble bursts, it could trigger a global financial crisis.
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So, why does China insist on such ambitious growth targets? The reasons are political; the target provides numerical evidence for the government’s proclaimed efforts to make China rich.
Deng Xiaoping (鄧小平) set the trend by declaring in 1980 that China would quadruple its GDP of that year by the end of the century. Current leader Xi Jinping (習近平) has set down a vision to transform China into a “moderately prosperous society” by 2020, through doubling the gross domestic product and per capita income from levels a decade earlier. This requires at least an average annual growth rate of 6.5 per cent in the coming five years.
The plan is a central part of Xi’s political agenda to achieve the “Chinese Dream” during his expected 10-year tenure.
While China has been through three decades of market-oriented economic reforms, the annual and five-year plans are still a key component of its state-controlled and centrally planned society, which allows the ruling party to play a “decisive role” in the distribution of resources and thus maintain its one-party rule.
This state-led economy has been instrumental in much of the party’s political success, though not necessarily the economic advances China enjoys today. Under the reform era, the Communist Party justifies the legitimacy of its rule by demonstrating its ability to deliver growth as well as the continuation of Karl Marx’s political and historical narrative.
Cary Huang is a senior writer at the Post