BEIJING – In a sweeping symbolic gesture, China lowered its growth target for this year, sending its clearest message yet that the world’s second-largest economy could no longer expand at its steroid-charged pace.
Speaking to about 3,000 delegates at the annual meeting of the National People’s Congress in Beijing on Monday, Premier Wen Jiabao said China would cut its growth target for the first time in eight years, from 8 percent to 7.5 percent, to make the country’s economy more “sustainable and efficient.”
Half a percentage point may not seem like much. But in China, it broadcasts a signal to policymakers, both national and local, that development will have to strike a better balance.
Swaths of empty luxury apartment blocks, environmental degradation and violent rural protests over land seizures are just some of the ways ordinary Chinese can point to vast inequities generated by no-holds-barred development.
“The announcement today means China will not simply chase after high-speed growth,” said Hu Xingdou, an economist at the Beijing Institute of Technology. “Instead, it will seek high-quality growth.”
How much of that scaling-back will be of China’s choosing remains to be seen. A reduced growth rate could owe just as much to deteriorating trade with Europe and investment constraints brought on by rising public debt and inflation.
China was able to cruise through the financial crisis unscathed because it had the firepower to unleash massive amounts of stimulus. The resulting property bubble and stress to the banking system mean the government can’t do it again.
With that in mind, the Chinese leadership is lowering the bar and tempering expectations at a time when China is expected to lead the world toward economic recovery.
The new growth target “is a political statement that says, ‘We can’t grow like we’d like to grow,’ ” said Patrick Chovanec, associate professor at Tsinghua University’s School of Economics and Management in Beijing. “They’re saying, ‘The economy is slowing, and we can’t admit to a hard landing.’ It’s an admission they can’t hit their target.”
To be sure, China already announced it would target slower growth of 7 percent when it released its current five-year-plan – an economic road map ending in 2015 that acknowledges the need to readjust the nation’s development model.
Whether or not Beijing accomplishes that will depend on the ability of the new generation of leaders set to take office later this year to reform entrenched interest groups such as powerful state-owned enterprises and coastal provinces with their large export industries.
In a report released last week, the World Bank and a think tank attached to China’s State Council outlined necessary reforms such as boosting the private sector and financial industry to empower Chinese consumers.
Beijing will also have to convince local officials that their political careers won’t solely hinge on delivering robust gross domestic product. Until then, government cadres have every incentive to build empty airports and lavish government offices to ratchet up growth numbers.
A running joke in China is that the national government will report 9 percent growth one year, but when you add up all the provincial numbers, national growth is in the 12 percent range.
It’s this manipulation of the system that has created deep mistrust in Chinese growth figures – and by extension, the credibility of China’s new expansion target.
“I don’t believe in GDP numbers,” said Zhou Xiaochun, a sociology professor at People’s University in Beijing. “They’re fairy-tale figures. In China, we say officials create figures and figures create officials.”
In all likelihood, China will report much faster growth than 7.5 percent this year, barring another global financial meltdown.
China far exceeded its 8 percent target last year by expanding by 9.2 percent.
“It’s never really a target; it’s more about setting a floor for growth,” said Wang Tao, chief China economist at UBS. “We still expect growth above 8 percent.”