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China’s strange growth arithmetic
In his weekend question-and-answer session on the Web, Wen Jiabao put the annual growth target for the coming Five Year Plan period at 7 per cent. There seems no reason to give much weight to this.
To begin with, such forecasts have held little water in the past. The last FYP set 7.5 per cent growth a year as its target and ended up with an average of 9.8 per cent. All the policy indicators from Beijing suggest high growth this year, probably in the 9-10 per cent range, with the government accepting higher inflation as set out in the report by my colleague Larry Brainard.
The main driver will be provincial governments, not Beijing. The usual motors – Guangdong, Shanghai, Zhejiang and Beijing − are all aiming for 8 per cent annually for 2011-15. Chongqing is going for 12.5 per cent. At least six other provinces plan to double GDP by 2015, implying 14 per cent a year.
The stress on urbanization and infrastructure, which means high growth, runs through the plans drawn up by inland provinces where expansion will be boosted by the relocation of factories from the coast. Provincial authorities remain dependent for revenue on land sales and a buoyant local economy. The annual scorecards of officials still put growth at the top of the list of issues on which they are judged.
Wen’s remarks follow from his litany over the last four years about the economy being unbalanced and the growth rate unsustainable. But how you end up with 7 per cent when no provinces are targeting under 8 per cent and some are aiming at 14 per cent is a mystery.
This can only add to the credibility gap fostered by the government’s inability to slow down the pace of growth in a significant manner – and its timid approach to the property market as shown by the very minor impact of the property tax introduced this month. In his weekend on-line exchanges, the Prime Minister made a couple of comments that hardly accord with the way the economy has developed, viz:
- “We will never seek an economic growth rate and big size at the price of the environment.” So what about the ecological degradation in the People’s Republic?
- “That would result in … industrial overcapacity and intensive resources consumption.” Indeed, as China’s record shows all too plainly.
If Wen meant that he was going to get to grips with such issues, fine. But the government has not shown an ability to row against the growth dynamic, with all that this entails for excess capacity, the environment and energy use. As China moves into the run-up to the leadership transition starting in October 2012, I doubt if the present leaders have the will to stamp on growth. If things get out of hand, of course, they may be forced to act. For the moment it is best to ignore Wen’s target (however sensible it might be in another world) and to expect continuing expansion in the annual range of 9-10 per cent.