Illustration: Craig Stephens
Yuen Yuen Ang
Yuen Yuen Ang

China’s economic headache: setting targets for quality development

  • As Beijing aims for quality growth, it makes sense to dilute or even ditch GDP targets, but this is difficult in practice
  • Central planners also need to prune the burgeoning list of goals for local governments and grapple with the difficulty of imposing quantitative targets while emphasising quality
When a country is poor, everything is tough, but at least the goal is crystal clear: raise gross domestic product (GDP). But when a country becomes richer, it turns out that problems do not end – they only become harder to pin down, juggle and solve. This is the struggle facing the Communist Party leadership under Xi Jinping today, even as it proudly declares that it has eliminated absolute poverty.
At the “ two sessions”, China’s annual legislative meetings, Beijing set a GDP growth target of 6 per cent for this year. However, unlike in previous years, it did not specify a GDP target for the next five years. This has sparked feverish debates on whether Beijing will abandon GDP targets altogether, and what new targets it will set to achieve its national ambitions.
These debates miss a much deeper problem: as Beijing aims for “ quality development” – a long-term, overarching vision pronounced in the 14th five-year plan and medium-term plan to 2035 – central planners are finding it increasingly difficult to set targets. This is true not only for GDP growth but also all other goals.

Since reform and opening up began in 1978, Beijing’s singular focus on economic growth has turbocharged the country’s rapid economic ascent. From 1978-2018, China clocked an average growth rate of 9.5 per cent, an achievement that the World Bank describes as “the fastest sustained expansion by a major economy in history”.

But this fixation with growth has come at a heavy price. Because GDP growth was prioritised above all other goals, the environment has deteriorated, natural resources were depleted, inequality rose and elite corruption exploded. Moreover, as GDP by itself does not measure the quality of inputs, local officials can easily drive up growth by borrowing and building more – leading to mounting levels of public debt. As a refrain in China goes: you can produce GDP by digging a hole and filling it up.

Beijing’s shift in emphasis from quantity to quality of development is a natural progression as China grows more affluent. More GDP cannot satisfy the growing aspirations of the Chinese people, nor can it boost China’s competitiveness vis-à-vis the United States, an economic and technological superpower.

Given its reorientation of goals, it makes sense for Beijing to dilute and perhaps even ditch GDP targets. Setting annual GDP targets can discourage local leaders from pursuing quality investments that do not quickly translate into GDP growth, for example, supporting tech start-ups and protecting the environment. It may also drive officials to ignore financial risks, as borrowing funds to build infrastructure is the quickest way to stimulate growth during an economic slowdown.
But in practice, letting go of GDP targets entirely is difficult. GDP remains the clearest metric for measuring bureaucratic performance – it reminds officials that economic success is the foundation of the Communist Party’s legitimacy and the precondition for achieving other goals. Central policymakers also confront wide regional variation: while wealthy cities have moved towards quality development years before Beijing’s pronouncement, other regions must still be motivated to grow their economies.
Hence, at the “ two sessions”, national leaders have chosen a compromised solution, setting a lower-than-expected target for 2021 but not for the next five years. This decision signals a move towards incrementally de-emphasising GDP growth while leaving room for localities to adjust their targets according to regional conditions.


Two Sessions 2020: China sets no GDP target, defence spending growth slows

Two Sessions 2020: China sets no GDP target, defence spending growth slows
Yet GDP targets are not the only struggle facing central planners. A second, seldom-noticed problem is “targets sprawl”. Over time, as China became more affluent, so have the demands on governments. In How China Escaped the Poverty Trap, I compare the targets assigned to local officials in the 1990s and 2009. (While targets are intensely discussed in the media, actual evaluation targets are rarely seen.)

In the 1980s, township leaders were only assigned six targets, with economic targets taking up the lion’s share of evaluation points, all packed into one page. By 2009, the list had ballooned to more than 140 granular targets. Both “speed of development” and “quality of development” were included, and so were targets on conservation, disaster prevention, education, hygiene, public order, petitions, party-building and more. Even “addressing the causes of corruption” was included as a target. As one urban district leader lamented: “We are responsible for everything.”

How China can fine-tune its dual circulation strategy to boost growth

When there were only a few targets, officials could devise an internal ranking of priorities from the most to least important. But when this list exploded to 140 items, officials are no longer able to juggle and finetune their allocation of resources and energy. Marginal increases in the points allocated to each target are no longer meaningful in adjusting bureaucratic priorities. ( For example, the number of patent applications is allocated 0.5 points out of 300 points; if more points are added, the denominator increases.) In short, when everything is a priority, nothing is a priority.
Still the most profound challenge is the third one: it is inherently difficult – indeed, self-defeating – to impose quantitative targets on “quality development”. For example, in a bid to accelerate innovation, the Chinese central government initially mandated a certain number of patents to be filed every year. This soon drove local governments to disburse a flood of subsidies, motivating individuals to file dubious, duplicative patents, for example, for home remedies such as “chicken soup eye drops”.

China’s grand plan points the way, but the path to success is still unclear

The big question facing Xi’s leadership is not just which targets to set – but rather, what should be done about the target system altogether. Quantitative targets are effective for crude goals such as GDP and industrial output, but applying these targets to innovation can backfire. It is also simplistic to assume that the leadership can change bureaucratic incentives simply by adding targets for every new national priority. Chinese bureaucrats can juggle a few targets, but not 140 of them.

Experiments are under way to create new metrics for government officials. Last month, the city of Shenzhen unveiled a new gross ecosystem product system, which takes into account sustainable economic and social development. Shenzhen can move ahead of the curve because of its exceptional income level. In comparison, earlier attempts to create “green GDP” metrics failed due to bureaucratic infighting.

The challenges of governance do not end with poverty elimination. As China grows richer and aims for higher goals, Xi’s leadership has to contend with conflicting, multi-dimensional objectives that cannot be reduced to a few simple metrics.

Yuen Yuen Ang is the author of How China Escaped the Poverty Trap and China’s Gilded Age. She is a professor of political science at the University of Michigan, Ann Arbor