The End of ‘GDP Worship’ in China?
To open China’s annual “Two Sessions” on Wednesday, Premier Li Keqiang delivered his government work report to the National People’s Congress. His report, by and large China’s equivalent of the U.S. State of the Union Address, reiterated the Xi administration’s pledge to fight corruption, and signaled imminent environmental reform with a declaration of “war on pollution.” Another major issue in the premier’s report: economic growth. The South China Morning Post reports:
Premier Li Keqiang today signaled that China will push ahead with key fiscal and financial reforms that should eventually allow the country to cut its dependence on the fixed asset investment that currently drives economic growth and has inflated a damaging property market bubble.
[...] The government plans to maintain the GDP growth target at “about 7.5 per cent”, after some economists predicted that a lower target might be put in place to underscore a decisive shift in the growth model toward slower, yet greener and more sustainable development over the next decade.
[...] By setting the GDP target unchanged, Beijing aims to boost market confidence and promote economic restructuring, while “more importantly” ensuring employment, he explained. [Source]
While this is the third year a 7.5% GDP growth target has been announced at the NPC, it is the first time Li did the announcing, and also the first time the adverb “about” preceded the figure. Bloomberg’s Adam Minter recalls Li’s words from a 2007 meeting to suggest that the premier may not place much faith in the accuracy of China’s GDP statistics:
[...] Li Keqiang himself doesn’t believe in the accuracy of Chinese GDP statistics.
That, at least, is what he told then-U.S. ambassador to China Clark Randt over dinner on Mar. 12, 2007. At the time, Li was the Secretary General of Liaoning Province, and widely viewed as a potential successor to Chinese President Hu Jintao. According to a Mar. 15, 2007, declassified U.S. diplomatic cable (released by Wikileaks) recounting the dinner, a “smiling” Li declared that Chinese GDP figures were “man-made” and therefore unreliable — “for reference only.”
Of course, only the most naïve economist would believe that a country as large and unruly as modern China could produce accurate GDP figures. Li told Randt that he preferred three different measures for evaluating his province’s economy, all of which were harder to fudge: electricity consumption, volume of rail cargo, and loan disbursements. “By looking at these three figures, Li said he can measure with relative accuracy the speed of economic growth,” the cable reported. Not long after the cable was released, the Economist — in tribute to Li’s candor — created the Keqiang Index, revealing a far more volatile Chinese economy than official GDP numbers suggested.
Discussing last week’s bloody attack in Kunming at The New Yorker, Evan Osnos wrote that “G.D.P.-ism” has replaced Maoism as the root of China’s national cohesion. But China’s Minister of Finance has also made clear that there are variables more important to China’s overall economy than GDP growth. From Reuters:
It is all right for China to slightly miss the government’s 7.5 percent economic growth target this year as long as enough jobs are created, the finance minister said on Thursday, stressing that a healthy labour market is more important.
Lou Jiwei told a briefing at China’s annual parliament meeting that the government has three broad economic policy goals each year: create jobs, control inflation and boost the economy. He said jobs are the most important of the three.
“Let’s say for instance, this year’s economic growth is not 7.5 percent, but 7.3 percent or 7.2 percent. Does this count as around 7.5 percent? Yes, it counts,” said Lou, who was previously the chairman of China’s sovereign wealth fund, China Investment Corp..
“Whether GDP growth is to the left or to the right of 7.5 percent, that is not very important. What is important is job creation.”
China aims to create 11 million jobs this year, he said. [Source]
The Wall Street Journal surveys the opinions of economists on the maintenance of a 7.5% GDP growth target, and the meaning of the premier’s qualifying “about”:
Premier Li sets himself a mission impossible… The new government promises to speed up reform, manage debt risks, fight pollution, and yet maintain 7.5% economic growth all at the same time. This is going to be nothing if not challenging. Maybe mindful of a potential miss, policymakers seem to give themselves a small degree of flexibility by using new phrases like “a reasonable range for the growth rate” and “the growth target is flexible…” The Chinese government really needs a lot more flexibility this year… It seems to us a mission impossible to achieve each and every task outlined in the premier’s speech without compromising on the growth target.– Wei Yao, Société Générale
This target will generate expectations of more policy support if the economy slows much further. While some reformers argued for a target of 7.0% or a range of 7.0%-7.5%, the ultimate decision appears to have been that Beijing cannot reform without a certain level of growth. The 7.5% target sends a strong signal to the provinces that while the central government is pushing for some painful reforms, it will still guarantee a certain level of growth. – Wei Li And Stephen Green, Standard Chartered Bank
[...] The government has left the growth target unchanged at “about 7.5%” for 2014, in line with most expectations. At the same time, though, Premier Li reiterated the need to control local government debt risks, increase oversight of shadow banking and suggested that fixed asset investment should slow… At face value, these goals appear incompatible. With consumer spending growth stable over recent years and exports on course only for a moderate acceleration, any appreciable slowdown in credit and investment would be almost certain to pull growth below 7.5%… Unlike in the past, it no longer appears that policymakers are inclined to defend the target at all costs. – Mark Williams and Julian Evans Pritchard, Capital Economics [...] [Source]