Sino File | Why obsessing over GDP is no longer in China’s best interests
Good governing is not just about keeping gross domestic product rising, but removing obstacles to sound consumer-focused fiscal reforms
China’s leadership has always seen gross domestic product (GDP) numbers as the most important indicator of their ability of govern; thus their whole apparatus does whatever it can, in terms of policies, to make sure a politically acceptable growth rate is achieved.
With a persistent slowdown, the government has to adjust its target to a maximised but achievable goal. Between 2010 and 2015, the world’s second-largest economy witnessed a steady slowdown, with annual percentage growth rates of 10.5, 9.5, 7.9, 7.8, 7.3 and 6.9, respectively. Averaged annual GDP growth rates between 1989 and 2009 were around 10 per cent.
Last year, the government set a range of 6.5 per cent to 7 per cent as a growth target, the lowest in decades. As expected, China is on track to meet that 2016 goal after three straight quarters of 6.7 per cent expansion.
However, such growth was achieved with an expansive fiscal policy, higher government spending, a housing rally, ultra-loose monetary conditions and record bank lending, which have also led to an explosive increase in debt.
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Government spending from January to September 2016 was 12.5 per cent up on the same period a year earlier, while revenues increased by 5.9 per cent. Of the 8.2 per cent overall growth in fixed-asset investment in the period, state firms jumped by 21.1 per cent and private firms rose 2.5 per cent.
