Adjusting to the End of GDP Supremacy
As the Central Economic Work Conference gets underway this week, much of the public attention will be focused on China's growth target for the coming year. At a time when the Chinese economy is both slowing down and experiencing the pain of restructuring, not to mention still coping with the aftereffects of the 2008 stimulus measures, Chinese leaders are likely to favor a steady expansion. They are also expected to press on with fundamental reforms while protecting bottom-line growth.
Protecting the growth floor means protecting jobs, first and foremost. Thanks to economic restructuring and the faster development of the services sector, more jobs have been created with every unit increase of gross domestic product.
By the end of the first three quarters of this year, for example, Chinese cities have already created enough jobs to meet the target set for the year. No longer does job creation depend on a breakneck speed of growth.
Ensuring minimum growth also means safeguarding the economy from systemic risk in the financial sector. These risks are considerable, given the ongoing property market corrections and high government debt. For both these reasons, economic growth must be kept above a minimum.
Many analysts expect the growth target to be set around 7 percent.
At this stage of its development, China ought to review the usefulness of GDP figures. This is not only a technical question, but concerns the transformation of the nation's development model and its governance ethos.
Before the 11th Five-Year Plan, growth targets were more or less set in stone, to be met no matter what. Since then, however, the government has made it clear the number is to be a goal to work towards. In practice, of course, many central and local government officials continue to regard these yearly targets as a command, with some deferring reform or restructuring, ostensibly so the targets could be reached.
This year, top leaders have repeatedly stressed that the growth target was set at "around 7.5 percent," and could be higher or lower. Yet, the message is barely heard in the local government offices around the country.
To enable change, some scholars have proposed doing away with the growth target in the 13th Five-Year Plan to focus official efforts on raising per capita GDP. One former senior official even suggested the government could stop releasing GDP numbers itself and leave the job to research centers in the private sector.
The leadership will have to decide how best to solve this problem. Whatever the solution picked, for China – today the world's second-largest economy – putting less emphasis on GDP figures and more attention on inclusive growth and ensuring social justice is the better development route.
Less emphasis on GDP growth does not imply a lighter workload for the government, however; just the opposite. To ensure China's long-term development, officials must double their efforts to institute reforms.
Lately, there's been plenty of talk about the "new normal" of Chinese economic development, as the economy switches to a lower gear. In this new state of the economy, innovation should be the new driving force, and effective, efficient investment a feature. Clearly, if this is to be the "new normal" of the economy, China must work harder to institute comprehensive reforms.
We are already seeing the positive impact of the spate of reforms this year. As proposed by the reform blueprint unveiled at the end of the party's third plenum, the central government has streamlined its administrative structure and rolled out hukou reform. Business registration procedures have been simplified, with the result that more companies have registered this year, while the services sector is enjoying a growing share of the GDP. According to economist Wu Jinglian, these are critical reforms. And, as he pointed out, these are just the first steps.
China is more ready than ever to welcome reforms. Next year, we expect breakthroughs in reform of the tax and financial system, social security, land and state-owned enterprises, among other areas. This will mean breaking interest groups' stranglehold on the economy, correcting the distortions in prices of key resources, improving the efficiency of resource allocation and ensuring social justice.
We also expect to see next year the tax and fiscal reform measures promised in a resolution passed by the Politburo at its last meeting.
At the most recent meeting of the leading group for overall reform, leaders have pledged to set priorities for next year, especially for key reforms that will act as catalysts for greater change.
Instituting the 300 over measures laid out in the reform blueprint will be a major challenge, which, when completed, will take China on the path of efficient, sustainable and balanced development.
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