China lowers GDP target to achieve quality economic growth

BY    2012-03-12 18:40:32

BEIJING – China has cut its GDP growth target to an eight-year low of 7.5 percent this year and made boosting consumer demand the first priority as the government looks to achieving long-term high quality development and putting economy on a sustainable track.

Analysts believed that the lowered GDP target will create more leeway to rebalance China’s economy and defuse price pressures in face of global turbulence and a pressing domestic demand for economic restructuring.

Chinese Premier Wen Jiabao said in his government work report that by setting a slightly lower GDP growth rate, China hopes to achieve "higher-level, higher-quality development over a longer period of time.

"Here I wish to stress that in setting a slightly lower GDP growth rate, we hope to make it fit with targets in the 12th Five-Year Plan, and to guide people in all sectors to focus their work on accelerating the transformation of the pattern of economic development and making economic development more sustainable and efficient, so as to achieve higher-level, higher-quality development over a longer period of time," Premier Wen said at the opening of the annual parliamentary session March 5.

China lowered its growth rate because "there are some overheating in certain sectors," and "there are some inflation pressure," the World Bank's Chief Economist Justin Yifu Lin said, adding that the slowdown is aimed at ensuring smooth economic growth in the long run.

The lowered target is seen as realistic by the country's lawmakers and political advisors, as new pressure from home and abroad has put a brake on the country's growth. They believed that the change indicates China has started to prioritize the quality over the speed of its economic growth and this would benefit itself.

The lowered target is in line with the theme of "making progress while maintaining stability" adopted at a central economic work conference in December, said Ye Qing, a local statistical official of central China's Hubei Province and a NPC deputy.

The 7.5 percent growth target has sent the message that China will shift from speed-prone growth to quality-prone economic development, said Liu Shucheng from Chinese Academy of Social Sciences, and a CPPCC member.

Taking into consideration of the changing environment, moderately lowering the growth target can make the local governments back away from excessively seeking growth speed, instead, put their emphasis on structural adjustment and improving efficiency, so as to leave much room for the transformation of economic growth mode, said Huang Hai, a CPPCC member and former assistant to Minister of Commerce.

Echoing Huang’s view, Chang Dechuan, NPC deputy and president of Qingdao Port Group Co. held that lowering growth target can provide more relax environment for economic transformation.

“Instead of blindly pursuing large scale, enterprises should take innovation, energy conservation and environment protection as the guiding principle for development,” Chang added.

There is no doubt that China needs to maintain some level of economic growth to sustain its development but the growth rate is not the ends. After 30 years of reform and opening up, people have more objective and more comprehensive view about economic growth rate.

“Economic development, after all, is for the development of the people. So economic growth should benefit people’s wellbeing,” Liu Rongxi, a NPC deputy from a grass-root community of Zibo city of Shandong Province, shared his opinion, stressing that improving people’s livelihood should go hand in hand with economic growth.

"A comparatively low economic growth rate will avoid heated inflation, leave enough room for improving energy efficiency, curbing pollution and restructuring development pattern," said Wu Angang, director of the Center for China Studies, Tsinghua University

China still faces many difficulties and challenges internationally and domestically in economic and social development, according to Premier Wen.

Domestically, Wen said, it has become more urgent and more difficult to solve institutional and structural problems and alleviate the problem of unbalanced, uncoordinated, and unsustainable development.

China's economy grew by 9.2 percent last year, down from 10.3 percent in 2010, with Europe in crisis and the U.S. recovery fragile, demand for Chinese exports is weakening.

The International Monetary Fund has lowered its forecast for China's GDP growth this year to 8.2 percent from the 9 percent projected in September 2011.

Zhuang Jian, a senior economist with Asian Development Bank, predicted that, based on experiences from previous years, the actual growth rate of China's GDP this year could be higher than the figure projected.

Even the 7.5 percent growth target is still high compared with other countries, given that the major economic engines in the world, including the United States, the European Union and Japan, are either not functioning properly or recovering slowly, Zhuang said.

A recent Reuters report said that China's acceptance of a slower rate of growth shows that the gradual rebalancing of the global economy long sought by world leaders is on track.

China which has been striving to wean off its reliance on external demand has put more emphasis on domestic consumption as its engine of growth this year.

According to Premier Wen, expanding domestic demand, particularly consumer demand, which is essential to ensuring China's long-term, steady, and robust economic development, is the focus of economic work this year.

Government policies will be improved to encourage consumption, and social safety net will be expanding, Wen said, "We will vigorously adjust income distribution, increase the incomes of low- and middle-income groups, and enhance people's ability to consume."

Boosting domestic consumption is crucial to China's future. Wen promised increased spending on health care and social services to free up disposable income.

Wen said the government would support more paid vacation, expanded consumer credit and greater buying options to help people spend more.

The emphasis will be the low and middle-income group, understood Fu Qiping, a NPC deputy from Zhejiang Province.

He said, due to lack of wealth accumulation, this group of people’s consumption level is low, thus failing to drive the consumption demand in the short term. "But in the long term, they have huge consumption potential," Fu added, "the key is to let this group of people have the ability to spend and dare to spend."

According to the work report, the central government has prepared its budget to meet the requirement that spending on education accounts for 4 percent of GDP.

The report also promised that, by the end of the year, the country will have achieved full coverage of the new old-age pension system for rural residents and the old-age pension system for non-working urban residents.

Qiao Hong, chief economist for Greater China, Morgan Stanley, said that more government spending in social security programs will help people feel more confident about spending, rather than saving.

The government should also work to close the enlarging income gap and raise the general income level, which will also benefit consumption, Qiao said.

"As the external market shrank, expanding domestic demand and shifting to a consumption-led economy has become an inevitable choice for China," said Chi Fulin, head of the China (Hainan) Institute for Reform and Development.

Premier Wen said in the report that industrialization, urbanization and agricultural modernization will help create huge potential demand.

"Progresses in urbanization is the ultimate way to increase farmers' income and expand consumption in the rural market," said Zhuang Jian.

Steven Dunaway, a scholar with the New York-based think tank the Council on Foreign Relations, told Xinhua that the external economic environment that China will face over the next decade will be substantially less favorable than what it faced during its high growth period from the mid 1990s.

"In these circumstances, the best thing for China to do is to concentrate on development of its domestic economy and domestic demand," he said.

The lowered target has also given full consideration to the domestic consumer price level.

Economic growth speed usually contradicts price level. As the history of China’s economic development has shown that it is not rare for the prices to skyrocket as the result of the sizzling economic growth. However, to keep the prices down excessively would risk putting the economy at a standstill.

According to the work report, the Chinese government set the full-year inflation control target for 2012 at 4 percent, unchanged from the target in 2011. It said China will maintain steady and robust economic development while keeping the consumer price level stable.

"In projecting a CPI increase of around 4 percent, we have taken into account imported inflation, rising costs of factors of production, and people's ability to absorb the impact of price increases, while leaving room for the effect of price reforms," Wen said.

Liu Shucheng, an economist with the Chinese Academy of Social Sciences, said the lowered target would help maintain a stable price level.

"The government is seeking a balance between economic growth and inflation and keep them both at a stable level," said Wang Yiming, deputy director of Macroeconomic Research Institute of the National Development and Reform Commission.

“Setting high growth target would increase inflationary pressure,” Wang noted.

The consumer price index (CPI), a main gauge of inflation, increased 3.2 percent year-on-year in February, its lowest pace in 20 months, the National Bureau of Statistics said Friday.

Ma Jiantang, director of the National Bureau of Statistics, on Monday said he expected inflationary pressure to ease a little as the economy slows this year, but he warned of a resurgence in inflation if the problem is not taken seriously.

"Potential factors such as rising labor costs that push up prices are still there," said Ma. "If not properly controlled, the inflation potential will turn into real risks for our economy."

Premier Wen pledged in the report that the government will continue to implement a proactive fiscal policy and a prudent monetary policy this year.


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