In an uncertain world, familiar orthodoxies take on a comforting glow. For example, the expectation that the English football team won’t make it past the quarter finals of next year’s soccer World Cup, or the knowledge that the former Soviet bloc countries will all vote for each other in this year’s Eurovision song contest.
News that the World Bank cut its estimate for Chinese GDP growth to 6.5% throws light on another familiar landmark – the mantra of China’s leaders that they will hit their annual 8% GDP growth target.
Whatever the World Bank thinks, it is business as usual in Beijing forecasting circles. Earlier this month, the National People’s Congress reaffirmed its expectation of 8% growth for the year and, in a survey of 73 Chinese economists published last month by the National Statistics Bureau, the average forecast was exactly 8% too.
Drew Thompson, writing in this month’s Foreign Policy, calls it China’s GDP numerology. Most China watchers, he says, will tell you that an 8% growth threshold is essential to maintaining employment (and, implicitly, to ensuring social stability). So, if asked about their expectations for the year ahead, Chinese officials “from the president down to the lowliest county magistrate” are always on message with an 8% answer.
In happier economic times, American policymakers also hinted at a similar capacity to control economic output like a circus elephant. Celebrating the goldilocks economy of the Clintonite 1990s, commentators referred to annual growth that was not too hot, not too cold but just right.
Of course, such confidence seems particularly out of kilter in the current economic maelstrom. Any growth whatsoever would be more than acceptable to most advanced economies this year.
But in the Chinese context, the statisticians have always gone a step further in adding a specific number to the mix. Thompson thinks that the 8% goal emerged shortly before the 12th Party Congress in 1982. Deng Xiaoping asked then General Secretary Hu Yaobang how the country could quadruple its economy by 2000. Hu said China needed 8% annual growth to do so – and so twenty-five years of statistical certainty was born.
It all seems disappointingly mundane. As Thompson says, there is no secret formula.
Anyway, the reality is that – whatever the predictions – economic growth rarely comes in spot on the forecast money. Last year, for instance, the GDP growth data for 2007 was revised from 11% to 13%, well above the mantra.
Overshooting the target by a large amount creates unease in policy circles, especially as inflationary pressure generates social unrest.But it remains a lot less likely that annual GDP performance will surprise dramatically on the downside, especially as the leadership’s legitimacy is now so squarely based on continuing to deliver economic progress.
This has led to some foreign observers crying foul. Analysis from Thomas Rawski in 2001 at the University of Pittsburgh is a case in point. Looking at 1998 – a year on from the outbreak of the Asian financial crisis – Rawski insisted the official GDP numbers for the year were “totally divorced from reality.” His own range of alternative “growth proxy” measures like energy production, air travel volume and non-processing import levels suggested the official GDP performance cannot have reached the 7.8% claimed.
Other economists have queried some of his assumptions. But most also agree that the official statistics look high for the period in question.
The economic backdrop in 2009 is far more severe than that of 1998 downturn, so it will be interesting to see if the magic 8% (or very close to it) is delivered once again.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.