New | Challenges and strains await for China’s 2020 growth vision
China’s target of 6.5 per cent annualised economic expansion over the next five years will no doubt be reached, but there is much work to be done
No one should doubt China’s capacity to meet the 6.5 per cent annualised economic growth target over the next five years unveiled by Premier Li Keqiang on November 1, but attaining its 2020 vision will mean overcoming substantial challenges at home and could lead to strains abroad.
For example, while China’s new business model requires the bolstering of the service sector to offset a fall in manufacturing activity, addressing industrial overcapacity takes time if the attendant social and financial costs are to be manageable.
A measured approach is required with regard to industries where output now outweighs local or indeed international demand, even if that raises hackles abroad.
“We have reduced more than 700 million tonnes of production capacity, and you can just imagine our task of finding jobs for those workers,” said President Xi Jinping on his recent state visit to Britain, when the scale of China’s steel exports was raised.
Nevertheless, as China seeks to rein in overcapacity, it must be preferable to proceed with a degree of caution lest moving too quickly creates even greater ripples that adversely impact the global economic outlook.
Quite simply, China is trying to work off years of credit-driven investment bets, many of which no longer look like winners. That means embracing the unpalatable truth that a lot of money that has been lent by China’s biggest banks is never going to be repaid and the loans will have to be written off. That needs careful but strong management.
