China Should Set 5% Annual Growth Target, Government Economist Says

(Bloomberg) — China should set an annual economic growth target of about 5% over the next five years, although the expansion is likely to fluctuate this year and next because of the coronavirus pandemic, a government-affiliated economist said.

The potential growth rate in the period covering the 14th five-year plan — released last month by the Communist Party — is 5%–6%, said Li Xuesong, a senior research fellow at the Chinese Academy of Social Sciences, a government think tank.

“But there are going to be fluctuations from 2020 to 2022 due to Covid-19,” he told reporters Tuesday in Beijing. “Taking into consideration such fluctuations as well as other uncertainties, we suggest China set an annual growth target of around 5% during the next five years.”

Chinese President Xi Jinping is aiming to double the size of the economy by 2035, with a focus on self-reliance in technology, increased domestic consumption and high-quality growth over speed. After recently publishing broad outlines for its five- and 15-year economic goals, the government is now working out how to achieve them, with more detailed plans expected in March.

Government economists such as Li are likely to be involved in the drafting of those plans, although he said Tuesday his comments were just “suggestions by our experts.” Li was speaking at a press briefing organized by the State Council, the Chinese government’s cabinet.

To boost domestic demand in the economy — a key feature of the so-called “dual circulation” policy articulated earlier this year — China will need to improve income distribution and raise wages, another economist at the briefing said.

“Without solving the problem of income distribution, there is no way to boost domestic consumption,” said Professor Zhang Xiaojing, director of the Institute of Finance and Banking at the government think tank. “Our first suggestion is to increase the level of labor compensation,” he said, noting the pay gap that still exists between China and developed countries.

“Secondly, the core problem is still inequality of income levels,” Zhang said. “If the income level of the low-income group can be raised, this will be a huge boost for domestic consumption. There is still a huge gap in consumption level between migrant workers and urban residents. Consumption expands if migrant workers can get a hukou and become urban residents.”

Hukou is a legal registration that allows someone to live and work in a specific city or area, and that determines their access to social services. It’s hard to transfer the registration from one place to another, although there has been some recent relaxation of the rules. Millions of people in China don’t live in the areas where they are officially registered.

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