Boao Forum for Asia

China’s leaders are too obsessed with the GDP growth rate, says S&P chief economist

Paul Sheard says it’s time for Beijing to focus on building a framework that delivers sustainable, long-term growth

PUBLISHED : Monday, 27 March, 2017, 4:51pm
UPDATED : Monday, 25 September, 2017, 2:56pm

China should shift its focus from short term growth to building up a framework to sustain long term economic development, says ratings agency Standards & Poor’s chief economist Paul Sheard.

“China loves a lot of planning, whether it be a five-year plan or a 10-year plan,” Sheard told the South China Morning Post in an interview at the Boao Forum for Asia.

But the planning often leads to disappointment among foreign observers in China, said Sheard, as policy actions do not always match with policy aspirations.

He cited the slow pace of reforms of state-owned enterprises and the banking system as examples.

The Chinese government is also failing to meet observers’ aspirations when it comes to dealing with credit and investment booms.

Economic development is not driven by short-term growth

Sheard said it was partly because policy makers are too focussed on hitting short-term economic growth targets and trying to maintain a high growth rate.

“The government shouldn’t be too obsessed about the GDP growth rate,” said Sheard.

The international ratings agency expects China to report a 6.4 per cent growth in GDP this year, below the government’s target of 6.5 per cent.

“Next year, our forecast for growth is a little bit lower, maybe 6.1 per cent,” he said.

He said the government should accept a bigger growth range of between 5.5 per cent and 6.5 per cent.

“Economic development is not driven by short-term growth. The growth target should be in service of longer term economic development,” said Sheard.

“Accepting a lower growth rate for a number of quarters would be like a down payment on sustaining longer term healthy growth and development .”

Sheard said debt and leverage are concerns for China, as is the increase in M2 – a measure of money supply that includes cash and checking deposits .

M2 increased by 11.1 per cent from a year earlier to 158.3 trillion yuan in February 2017, easing slightly from an 11.3 per cent rise the previous month

Sheard does not believe a crisis is imminent because the mainland still has great growth potential and economic management is on track.

Speaking at the same forum, Fan Gang, director of the National Economic Research Institute , said high economic growth did not mean the country’s growth was healthy.

China’s economic growth rate hit 12 per cent after the 2008 financial crisis, as the government introduced stimulus policies . But this was overheated, unhealthy growth, said Fan.