Economy

For my next trick

Wen lowers GDP targets

Mr 7%: what Wen wants

It was during one of his ‘fireside chats’ that Franklin Roosevelt first introduced his American listeners to the New Deal in May 1933. China’s prime minister may have had something similar in mind this week – albeit using the internet rather than the radio to communicate a new philosophy of his own.

Wen Jiabao has conducted a couple of online chats before, but his comments this year returned to the heart of China’s economic model, making them especially worthy of note. Some of the sentiment returned to familiar themes: that the country should “no longer sacrifice the environment for the sake of rapid growth and reckless roll-outs”, as well as warnings against industrial overcapacity and excessive resource consumption.

But the underlying premise – ditching the philosophy of growth for growth’s sake – seemed more pronounced.

And that led Wen to revise downwards the country’s growth targets. Over the past five years China has seen GDP rise around 10% per annum. Over the next five, Wen says, the leadership wants to see a more ‘sustainable’ growth rate of 7%.

The timing of Wen’s announcement is no accident. Tomorrow, China’s parliament, the National People’s Congress (NPC) begins its annual session, and this year it will approve the latest Five Year Plan. The message is that the plan’s latest iteration will tweak the nation’s growth model – one that for the past three decades has focused on rapid industrialisation, huge government investment and an economy often geared towards exports. Together, they’ve made China into the second biggest economy globally.

In his online chat, Wen admitted that changing China’s growth patterns won’t be easy, particularly as local officials will need a lot of convincing.

“We need to make every local government know that the key impetus of economic growth lies in scientific and technological progress and in boosting domestic consumption,” he warned.

Wen added that the central government will adopt new performance evaluation measures for local governments, that tilt incentives away from judging their success by GDP figures alone. The new criterion, he says, will assess the local bureaucrat more in terms of “whether the public are happy or not… but not by how many high-rise buildings and projects he has been involved in.”

Setting aside quite how Wen plans to measure his fellow citizens’ happiness, will his plans for a 7% theshold gain traction? Or like his repeated calls for house prices to fall, will they amount to little?

Of course, as China’s GDP climbs each year it becomes much more difficult to maintain the heady annual growth of the last two decades. The law of large numbers says growth rates must eventually slow of their own accord. Wen doesn’t want to see the leadership committed to targets that it knows it can no longer reach, even if he may not be around himself to take the flak (he leaves office next year).

But there is also little reason to question Wen’s commitment to a more sustainable rate of development. The question is more – as Wen himself admits – whether local officials can be primed to aim for more quality over quantity.

Century Weekly magazine, for one, is sceptical that they can be weaned off their GDP steroids, noting that detailed blueprints have already been submitted by provincial and municipal governments for investment over the coming five years, and few offer evidence of much attention to the new thinking.

“Among 26 provinces, municipalities and autonomous regions that held legislative meetings in January, about 10 have drafted ambitious plans to double their respective economic output by 2015, or an equivalent of around 15% annual GDP growth,” chides Century Weekly.

Even Wen’s hometown of Tianjin seems addicted to the growth fast track. The municipality grew GDP 17.4% last year and is on Century Weekly’s list of those setting a double digit growth target for the next five years (i.e. far in excess of Wen’s 7% figure).

HSBC’s China research team agrees it will be a challenge: “We remain confident that Chinese GDP will overshoot target again in the coming five years. We expect growth to remain at 8-9%.”


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