After years as a planning formality, China’s official target for economic growth is posing a problem for the country’s leaders amid confusion about the signals the goal sends — and whether it even matters.
Premier Li Keqiang will announce the annual GDP target in a speech Wednesday to the legislature.
Some economists see the growth target as a holdover from the days of the planned economy and a symbol of short-term thinking. They say officials naturally will try to exceed the goal, generating growth without regard to environmental and social ills.
“Targeting has achieved the goal of providing economic development incentives, but it also created a whole host of problems with land policy, with local government debt, with the banking system and generally rising debt levels,” said Li Wei, an economics professor at Beijing’s Cheung Kong Graduate School of Business.
At issue for Chinese leaders is where to set the target, given that overall growth is slowing – perhaps even faster than Beijing would like. Setting a high target would show that the government still places a premium on growth. A lower target would signal that the government’s focus has shifted from growth at any cost to tackling debt, tax and other structural problems.
Local media, citing unidentified sources inside the government, say this year’s target is likely to repeat last year’s aim of “about 7.5%” growth. Officials may opt to soften their wording, calling the figure an “expectation” rather than a target, Mr. Li said.
For most of the past 20 years the target has been set between 7%-8%. In most years China exceeded it handily, on average by two percentage points. It missed only once, in 1998, by a whisker.
China’s gross domestic product grew 7.7% in 2013, the same as the year before. But with mounting debt and recent signs of weakness in the manufacturing sector, many economists doubt the economy can keep up a similar pace.
“I think fixing it at 7.5% will prove to be a very awkward situation for the government,” said Yao Wei, an economist at Société Générale. “It would be better to give themselves some leeway.”
via What’s in a Number? For China’s Leaders, a Lot – China Real Time Report – WSJ.