Moreover, defense spending was budgeted to rise 7.6 percent, which represents a significant decrease from 10.1 percent last year. Neither represents a disruptive change; both reflect the ongoing balancing act.

In the past few years, Premier Li Keqiang has pushed structural reforms but shunned another huge stimulus, which would contribute to government debt. He favors smaller, targeted fiscal measures. In turn, gradual deleveraging seeks to reduce local government debt, which accumulated after the 2009 stimulus.

Undoubtedly, the most serious signal that the government is resolute about reforms is the pledge to reduce excess capacity even if it will require 3 million workers to be laid off in the coming 2-3 years.

Growth by fundamentals, growth by debt

Internationally, China's balancing act - the effort to couple structural reforms with rebalancing of the economy - is something unique.

Today, U.S. sovereign debt exceeds $19.1 trillion and the size of the economy. Europe has been struggling with massive sovereign debt crisis since 2010 and most core economies rely on debt-fueled growth. In Japan, Premier Abe's agenda has contributed to the debt burden, which is now almost 250 percent of the GDP. Washington still lacks of credible, bipartisan medium-term debt-reduction plan. Brussels lacks institutions to implement such plans regionally. Japan has a plan but it continues to contribute to debt.

Without effective growth, major advanced economies rely on ultra-low interest rates (U.S.), continued quantitative easing, or both (Europe, Japan). In contrast, China is engaged in a structural transformation, even as it is deleveraging.

The new range target of 6.5-7 percent growth for 2016 is ambitious but feasible. Assuming peaceful international environment and gradual domestic reforms, it is likely to further decelerate to about 5 percent by 2020. Assuming advanced economies can avoid contagious debt crises, U.S. annual growth is unlikely to exceed 2.5 percent, Eurozone expansion will remain less than 1.5 percent and Japanese growth will struggle at 0.5-1 percent. But that is growth by debt.

In contrast, China has potential to grow 2-3 times faster than major advanced economies, as long as market-oriented structural reforms will prevail. And that is growth by fundamentals.

Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see www.differencegroup.net

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.

Related

Go to Forum >>0 Comment(s)