Growth goals ‘should be done away with’

Economist says if an­nual GDP tar­gets are not met, peo­ple will say that it is a fail­ure, re­ports.

China Daily (Canada) - - EXPATS -

Cai Hong­bin, one of China’s most re­spected econ­o­mists, be­lieves the set­ting of na­tional an­nual eco­nomic growth tar­gets is in­creas­ingly plac­ing too much pres­sure on the coun­try’s econ­omy.

The dean and pro­fes­sor of ap­plied eco­nom­ics at Guanghua School of Man­age­ment said there re­mains a cul­ture that miss­ing the tar­get con­sti­tutes a fail­ure. The cur­rent tar­get of about 7 per­cent was set by Premier Li Ke­qiang in March.

“Ev­ery­body is read­ing that sin­gle num­ber and that cre­ates a sort of pres­sure where if the econ­omy does not reach that an­nual tar­get ev­ery­one will say that it is a fail­ure,” he said.

The aca­demic, who is also a deputy to the Na­tional Peo­ple’s Congress, the na­tional leg­is­la­ture, was speak­ing at Guanghua, one of China’s lead­ing man­age­ment schools and part of Pek­ing Univer­sity, which he has led for five years.

He be­lieves China’s pol­i­cy­mak­ers have al­ready rec­og­nized that a rigid tar­get is no longer needed by pre­fix­ing it with “about”, although an­a­lysts and the fi­nan­cial mar­kets now in­ter­pret this as mean­ing the goal is now within 0.3 per­cent­age points ei­ther side of the set fig­ure.

“I think even though their (the pol­i­cy­mak­ers’) view is start­ing to change, in prac­tice it is not yet there yet. There is still a mind­set from cen­tral plan­ning times where peo­ple want to set a tar­get.

“The fig­ure that is set should re­ally be a forecast. Even if we say that we want to achieve this, it shouldn’t be the case that we go out to achieve it no mat­ter what. That is not the right ap­proach.”

He is con­fi­dent that if China is to move to­ward a more mar­ket-driven econ­omy, the set­ting of a growth tar­get would be­come re­dun­dant.

“If we re­ally be­lieve in a mar­ket econ­omy, it is the mar­ket that plays an im­por­tant crit­i­cal role in re­source al­lo­ca­tion. No mar­ket econ­omy can say it is go­ing to grow by 7, 6 or 5 per­cent.”

Cai, in his role with the NPC, called for an over­haul of growth tar­gets two years ago, want­ing them re­placed with a se­ries of lo­cally set tar­gets at city and pro­vin­cial level.

“I think we should set tar­gets bot­tom-up rather than top-down. The prob­lem with the top-down sys­tem is that there is a ratchet-up ef­fect since no­body wants to miss the na­tional tar­get and be the worst per­former.

“If each city and province set its own tar­get, it would do so in ac­cor­dance with its own con­di­tions and plans.”

The 48- year- old economist, who is also a con­trib­u­tor to in­ter­na­tional jour­nals, be­lieves there is far too much of an ob­ses­sion both within China and in­ter­na­tion­ally about what the cur­rent GDP growth fig­ure ac­tu­ally is, of­ten lead­ing to short-term think­ing.

“If we just fo­cus on the cur­rent quar­ter or yearly growth rate, you some­times lose the big pic­ture. In­stead of pay­ing too much at­ten­tion to whether we reach 7 or 6.5 per­cent this year, we should be look­ing at whether we are on the path to sus­tain­ing rea­son­ably high growth over the longer term.”

He said if this ap­proach was taken there would not be quite the con­cern about the ef­fect of re­form mea­sures on short-term growth.

“We need to be able to im­ple­ment re­forms as re­quired at each point and see that there is no in­trin­sic con­flict be­tween growth rate ver­sus re­forms with only the long-term goal in mind.”

Cai, who is from Xinyu in Jiangxi province in south­ern China, orig­i­nally stud­ied math­e­mat­ics at Wuhan univer­sity be­fore switch­ing to eco­nom­ics for his master’s at Pek­ing Univer­sity.

“In the 1980s, China had just started the re­form process and all the dis­cus­sions were about what was the right eco­nomic sys­tem, how the mar­ket econ­omy works as well as agri­cul­tural and SOE re­form, and these is­sues fas­ci­nated me. There was no clear an­swer in math­e­mat­i­cal terms so that led me to study eco­nom­ics.”

He went on to do a doc­tor­ate in eco­nom­ics (as well as a master’s in sta­tis­tics) at Stan­ford have a de­cel­er­at­ing growth rate and a weak econ­omy is that macro poli­cies did not ad­just fast enough when the econ­omy cooled down con­sid­er­ably.”

Cai, how­ever, thinks there has been a ma­jor in­ter­na­tional over­re­ac­tion to China’s cur­rency de­pre­ci­a­tion in Au­gust as well as the stock mar­ket crash af­ter a year­long boom.

Many have ques­tioned whether the gov­ern­ment should have stepped in to pre­vent greater share price falls.

“My view is that when the stock mar­ket goes re­ally high, there is some po­ten­tial for a cri­sis and the judg­ment has to be whether there is a po­ten­tial for sys­temic risks. I think the gov­ern­ment judged at the time there was sys­temic risk.”

One of the big eco­nomic de­bates in China is whether the coun­try needs to move to a new eco­nomic model based on ser­vices.

The aca­demic main­tains that man­u­fac­tur­ing re­mains key to China’s fu­ture eco­nomic suc­cess and is a sup­porter of the re­cent Made in China 2025 man­u­fac­tur­ing plan.

“Peo­ple say that ser­vices is good and man­u­fac­tur­ing is bad, but I com­pletely dis­agree with this. If the man­u­fac­tur­ing sec­tor be­comes stronger then the ser­vices sec­tor will grow out of that.”

The other ma­jor hur­dle China has to get over is the open­ing up of its cap­i­tal mar­kets, which HSBC bank forecast could hap­pen as early as 2020.

“I don’t think we should have a dead­line for this. I also don’t think the com­plete open­ness of the cap­i­tal ac­count should be a goal in it­self.

“To do it at the wrong time could be pretty dan­ger­ous, and right now it would be bad for China be­cause there has been too much fluc­tu­a­tion and volatil­ity.”

Cai is adamant that it is im­por­tant for pol­i­cy­mak­ers to think very long term and to avoid knee-jerk re­sponses.

“When you are mak­ing a very long jour­ney, the most im­por­tant thing is that you reach your des­ti­na­tion since along the way you will meet many un­ex­pected sit­u­a­tions.”

Con­tact the writer at an­drew­moody@chi­

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