Wednesday, 9 March 2016

The giant consequences of China’s 6.5%-7.0% growth target


By John Ross
The following analysis of China's decision to adopt a growth rate target of 'at least 6.5%' for its new 13th Five Year Plan for 2016-2020 originally appeared at China.org.cn.

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The economy tops the agenda at this year's National People's Congress (NPC) with a focus on both prospects for 2016 and the 13th Five Year Plan for 2016-2020. Discussion on both was framed by two major events. On March 4, Chinese President Xi Jinping made key statements on China's long term economic strategy while attending a panel discussion at the annual meeting of the Chinese People's Political Consultative Conference (CPPCC). On March 5, Premier Li Keqiang delivered the government's work report to the NPC focusing on medium to short term targets. The relation between the two was clear.
At the CPPCC, Xi Jinping reiterated that China's fundamental economic structure would continue to be based on "diverse" forms of ownership which would develop side by side with a state sector that would play the "dominant" role - a firm restatement of China's fundamental economic strategy since reform was launched in 1978. This economic structure generated in 1978-2015 an average annual GDP growth of 9.6 percent - the fastest sustained expansion by a major economy in history.
Xi Jinping's emphasis may be placed in the context of two statements he made in November. At a politburo study session China's president emphasized that a Marxist political economy would continue to guide China's economic policy. Following a meeting of the Communist Party of China's Central Committee, the president stated that economic growth during the 13th Five Year Plan period must average "at least 6.5 percent."
Premier Li Keqiang's work report to the NPC outlined medium to short term projections within these fundamental parameters. As the international media focused attention on 2016's growth target of 6.5-7.0 percent, and the Five Year Plan's minimum annual 6.5 percent, these will be analyzed first.
Qualitatively, China's target is to achieve a "moderately prosperous" society by 2020. This translates into the Five Year Plan's arithmetic.
To achieve "moderate prosperity," the previous 12th Five Year Plan set the goal of doubling GDP for 2010-2020 - requiring a 7.2 percent annual average growth over the decade. However, in 2010-15 growth was faster than the targeted rate - averaging 7.8 percent. To complete the goal by 2020 now requires 6.5 percent growth. This constitutes the basis of the "at least 6.5 percent" target during the 13th Five Year Plan reiterated in Li Keqiang's government report. The 2016 growth target is to meet or exceed the annual rate required to achieve "moderate prosperity" by 2020.
Both the Five Year Plan and 2016 targets are aimed at achieving their goals without economic overheating. In 2016, inflation is forecasted at 3 percent, accompanied by a budget deficit of 3 percent of GDP - modest by current international standards. Environmental protection is emphasized with energy consumption per unit of GDP targeted to fall by 3.4 percent in 2016. The Five Year Plan, for the first time, incorporates a total cap on annual energy consumption - an equivalent of 5 billion metric tons of coal by 2020. To sustain technological innovation, R&D expenditure will rise from 2.0 percent of GDP in 2015 to 2.5 percent by 2020.
Socially, strong emphasis was given to poverty reduction, with central government funds being increased by 43 percent in 2016. Over the course of the Five Year Plan, all of China's 70 million people remaining in poverty will be lifted out of it, with 2016's goal being 10 million. Life expectancy, the most sensitive overall indicator of social well-being, is projected to rise by a further year during the Plan.
Achieving these goals will have truly dramatic consequences for China, constituting an enormous increase in human wellbeing. But to understand the world changing consequences of China achieving these goals, and therefore the scale of challenges faced, it is necessary to translate these figures into international standards.
China in 1949 was one of the world's least developed and poorest countries and has already transformed the world by achievements in poverty reduction. From 1981 to the latest World Bank data, 728 million people in China were lifted out of internationally defined poverty - the whole of the rest of the world achieved only 152 million. Now, after 37 years of rapid growth, China is about to transform the world towards the top range of international income levels.
"Moderately prosperous" is a specifically Chinese target, but the World Bank establishes an international criterion for a "high income" economy - per capita GDP of $12,736 in 2016. While exchange rates would affect the exact figure, China achieving the 13th Five Year Plan's growth and inflation targets would bring it to the threshold of or exceeding World Bank criteria for a "high income" economy.
But in the latest World Bank data, the combined population of all high income economies is 1.368 billion, while China's population is 1.364 billion. China entering the ranks of high income economies would, in a single step, double the number of people living in these countries.
Chinese people achieving "moderate prosperity" would transform the global economic situation. It would also transform China's position in the world, being reflected in corresponding changes in China's defence spending and foreign policy weight. But as a consequence, rather than concentrating on the enormous step forward for humanity that China's "moderate prosperity" would constitute, some forces are attempting to block China's rise - even if this means China's people, one fifth of humanity, would not achieve prosperity.
The most powerful such forces are U.S. neo-cons whose goal, in the words of a recent study for the U.S. Council on Foreign Relations on "Revising U.S. Grand Strategy Towards China," was, "preserving U.S. primacy in the global system ought to remain the central objective of U.S. grand strategy in the twenty-first century." To practically achieve this, it called for "new trade arrangements in Asia that exclude China." Parallel anti-China propaganda campaign attempts are seen as otherwise inexplicable attempts to portray China as facing a "hard landing" when China's growth rate is almost three times that of the U.S. with China adding more to the world's GDP each year than the U.S.
The fact China has set a growth rate goal of 6.5 percent and above for the next five years has a far greater significance than in domestic terms alone. It is the most important economic target on the planet.

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