Beijing locks minimum growth at 6.5 per cent a year to underpin President Xi Jinping’s China dream

China’s decision to put the growth floor at 6.5 per cent for the next five years is more of a political than an economic decision, according to officials, and reflects the paramount role of President Xi Jinping’s vision in shaping the country’s economic and social future. Xi has set two promises, as outlined in the 13th five-year plan –歡to double China’s GDP by 2020 from 2010 along with the incomes of urban and rural residents. These are the key steps in realising the China Dream, the hallmark of Xi’s rule. Watch: China sets 2016 growth target range at 6.5 to 7 percent “It is needed because the party has already promised to the people to double GDP and per capita income by 2020,” said Zhang Xiaoqiang, a former vice-chairman of the Development and Reform Commission, the planning agency. “If annual average growth can’t reach 6.5 per cent in the coming five years, it would mean China had lagged behind its goal of building up a comprehensive well-off society by 2020.” With a comprehensively well-off society in 2020, supposedly the last year of his rule, Xi could proudly claim a key milestone in national rejuvenation and achieve high marks in China’s historical textbook. The first Centenary Goal, marking the 100th anniversary of the Chinese Communist Party, is to double 2010 GDP by 2020, thus building a modern socialist country and realising the goal of a rejuvenated Chinese nation. But economically, this may require a twin effort by Beijing in wielding its fiscal and monetary policies to support growth that is quickly losing steam amid an ageing population, lingering property overhang and rising debt levels. Policymakers have already demonstrated a willingness to go the extra mile. For 2016, China has budgeted a fiscal deficit at 3 per cent of GDP, the psychological ceiling, up from an actual 2.4 per cent last year. It’s an unwritten rule in China that the fiscal deficit, at least on paper, should never go beyond 3 per cent of GDP, but that tradition will soon be challenged. “It can’t be ruled out that the ratio will be raised to exceed 3 per cent next year or later,” said Jia Kang, a former researcher with the Finance Ministry and now a Chinese People’s Political Consultative Committee member. “The 6.5 per cent is an iron bottom that should never be broken … if growth slows to approach the bottom, there will be pro-growth policies.” On top of that, Premier Li Keqiang said in his government work report that at least some governments would be allowed to take on more debts. Zhu Guangyao, deputy finance minister, said an expanded fiscal deficit was aimed at stabilising domestic growth when headwinds from a weak global economy are strong. “There will be fiscal, monetary and structural policies to help growth, and fiscal policy is just one of the tools,” said Zhu. On the monetary side, China has targeted 13 per cent growth in broad money supply for 2016, up from the 12 per cent target last year. For the first time the government also included a growth target for outstanding aggregate social finance – setting it at 13 per cent for 2016, echoing comments by People’s Bank of China governor Zhou Xiaochuan last month that China would lean towards monetary policy easing. China is unlikely to repeat the reckless development of the past five years – China used more cement between 2011 and 2013 than the US used in the entire 20th century, for instance. Even Premier Li sees “unbalanced, uncoordinated and unsustainable” issues in China’s growth. On transport links, China plans to boost its high-speed railway network to 30,000km by 2020. It already had 19,000km of track by the end of 2015 – more than the rest of the world combined. Even a cross-strait railway line linking Fuzhou and Taipei is under consideration. To pursue “an innovative, coordinated, green, open and inclusive” way of development, Li said the government would focus more efforts to boost innovation, to protect the environment, and to improve people’s living conditions. But he offered few new specific policy initiatives. China’s economic transformation is a “process of adjustment with pains, as well as a process of upgrading with hopes,” Li said. “As long as China can overcome the pass, the Chinese economy can remake itself and realise new glories.” Still, China has to endure some pain and shut unwanted facilities. “While the US economy is much bigger than China … the US has less than 30 float glass production lines and China has more than 300 production lines. You can imagine how serious the overcapacity problem is,” said Cao Dewang, chairman of Fuyao Glass, one of the country’s biggest car glass manufacturers. “There are so many junk facilities, from manufacturing to property, and all these should be wiped out.” As Beijing paints a picture of a richer, happier socialist country by putting “middle-income trap” risks behind it by 2020, economic strains and wealth gaps are too visible to ignore on the street. Wei Jiancai, a 41-year-old from steel-heavy Xingtai in Hebei province, sits idly at the gate of a luxury apartment in downtown Beijing on a windy afternoon, his three bags beside him. “Wages are very low in my hometown these days as the local steel industry has collapsed,” says Wei. “That’s why I am looking for job in Beijing. But it’s not easy to get a good job here either.” For Wei, a good job is defined as one paying 100 yuan a day with free food and dormitory. China, with its vision of raising per capita GDP to over US$10,000 in the next five years, will have to look after a lot of people like Wei before the China Dream is solid and real.

Beijing locks minimum growth at 6.5 per cent a year to underpin President Xi Jinping’s China dream

Premier Li Keqiang puts focus on boosting economic innovation while protecting the environment and raising living conditions