China prepares to end GDP obsession
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China will seek lower economic growth in the coming five years as the constant pursuit of rapid expansion in past years has brought about unbalanced economic and social development.
China is targeting an annual average growth rate of seven percent in the next five years to 2015, Premier Wen Jiabao told nearly 3,000 national legislators Saturday.
The move is meant to bring a "significant improvement in the quality and performance of economic growth," Wen said.
The new target is quite impressive for the developed nations still struggling to stimulate economic growth after the international financial crisis. However, it seems modest in comparison with the target of 7.5 percent five years ago.
During the 11th Five-Year Plan period (2006-2010), in fact, China's economy expanded at an annual average of 11.2 percent despite impacts of the global economic turmoil.
It's true that official targets often underestimate actual economic growth, however, economists believe the new target for the 12th Five-Year Plan reflects the government's determination to shift the focus from speed to quality.
Such a message was also signaled in Wen's remarks on February 27 during an online chat with netizens. The premier said the government must no longer sacrifice the environment for the sake of rapid growth.
Literal reading?
The decision is made as the international financial crisis has exerted deep impacts, global economic growth remains slow, and China's development is unbalanced, uncoordinated and unsustainable, according to the draft 12th Five-Year Plan submitted to the annual parliamentary session Saturday.
"The target does not mean China's economic rise will slow down to seven percent," noted He Qiang, a financial expert with the Central University of Finance and Economics. One consideration is that it is conducive to prevent an overheating of the economy, he said.
Also, the continuous elimination of outdated industrial capacity will put pressures on economic growth, he said.
"A lower growth rate leaves room for possible economic fluctuations during the five years in case global or regional economic crisis bites again," said Wang Jun, a macro-economic researcher with the China Center for International Economic Exchanges, a government think tank.
The move also indicates the government has become more tolerant of slower growth, and policy-making can become more flexible in the next five years, he said.
Other economists see the voluntary abandonment of addiction to fast growth marks the government's firm determination to revamp the economy by reducing dependence on exports and capital- and energy-intensive industries. Instead, conditions for more domestic demand will be built.
A belief for local governments?
China's stunning economic rise in recent years, always exceeding annual targets, has been pushed by local governments' racing to boost regional GDP growth by putting huge investments in capital- and energy-intensive industries.
The annual growth rate of over nine percent in the past three decades has enabled China to take the place of Japan as the world's second largest economy after the United States.
However, that success comes with heavy costs: pollution, yawning wealth gap and corruption. Premier Wen defined the development model as "unbalanced, uncoordinated and unsustainable".
With a lower economic target, the central government intends to make it clear to local leaders that property investment and energy-intensive industries should not be key drivers of economic growth, Wang Jun said.
It also helps ease local governments' pressure on seeking high GDP growth and competing for rankings in an effort to meet the official evaluation system which places great emphasis on economic growth, he added.
The central government's decision to scale down the economic growth target is a guide to lower expectations for fast GDP increase, said Liu Zhiyan, an expert with the Chinese Academy of Social Sciences, a government think tank.
The government wants a slower growth speed in exchange for an upgrade in economic quality, he said. "It is hard to improve economic quality amid expectations of fast economic increase," he added.
However, it seems local governments do not feel comfortable with slowing regional growth. According to their five-year growth targets unveiled prior to the central government's plan, 25 provincial regions out of 31 in the Chinese mainland set double digit growth rates for the 2011-2015 period.
Local governments tend to set their goals higher than seven percent to ensure their jobs are accomplished, said Tang Shibao, a senior executive of the Guangxi Beibu Gulf Bank. He called for the central government to reduce the weighing of GDP growth in assessing local governments.
A report from the ANZ Bank said that, as history indicated, China's economy is expected to grow 9.6 percent in 2011.
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