Lower growth target can help reform
The Chinese economy grew by 6.8 percent year-on-year in the third quarter, with GDP expanding 6.9 percent on the whole for the first three quarters. In sharp contrast to concerns over a hard landing a year earlier, the data showed China’s strong economic resilience. In my opinion, the booming economic performance this year can be attributed not only to support from traditional infrastructure and the real estate sector, but also to new momentum from the rapid development of services such as the Internet, mobile payment and new energy.
While expressing satisfaction with the hard-won results, China’s decision-makers have also signaled a shift in policy priorities from overall economic growth to quality of growth and resolving some of the prominent contradictions that have been seen in recent years. In a speech at the opening session of the 19th National Congress of the Communist Party of China (CPC), General Secretary of the CPC Central Committee Xi Jinping said the principal contradiction facing Chinese society is the one between unbalanced and inadequate development and the people’s ever-growing needs for a better life. This indicates that the policy agenda may pay more attention to promoting fairness in the future. On October 15, China’s central bank chief Zhou Xiaochuan stated that during the global financial crisis, China had responded with proactive fiscal and monetary policies, leading to a substantial increase in debt. He said it was worth doing that, because the Chinese economy recovered from the crisis quite quickly, but now the country needs to find ways to bring the leverage ratio down.
Considering that future policy priorities will focus on income distribution, green development, deleveraging and other areas, and that China has already reserved room for its goal of doubling 2010 GDP by 2020 thanks to the rapid economic growth in recent years, I suggest that the government could lower its growth target for the next three years. Since growth of about 6.3 percent would be enough to achieve the 2020 GDP goal, the growth target for next year could be reduced to 6 to 6.5 percent, leaving more space for reforms and deleveraging.
In the first three quarters, China’s consumption recorded outstanding performance, contributing 64.5 percent to GDP, an increase of 2.8 percentage points compared with last year. This proved again that consumption is one of the main pillars of China’s growth. There used to be concern over the impact of the anti-corruption drive on consumption, but it seems that such worries were unnecessary. With the rise in residents’ income, consumption is now undergoing a transformation and upgrade process, with booming demand for catering, luxuries and overseas tourism.
Amid the financial deleveraging and more stringent management of local debts, China’s fixed-assets investment has maintained a downward trend. Investment in infrastructure and real estate contributed a lot to reversing the economic downturn of the previous year and despite the tightening liquidity, the impact on the two sectors has been quite limited.
Thanks to the rebound in the producer price index, the profitability of industrial enterprises has also improved remarkably. In September, China’s value-added industrial output expanded by 6.6 percent year-on-year. In the first eight months of this year, China’s industrial profits jumped 21.6 percent, with profits up 24 percent year-on-year in August alone, indicating an improvement in corporate profits as a result of cutting excess capacity.
In addition, exports have performed much better compared with last year, contributing significantly to economic growth. This is due in large part to the improving global economy, with the IMF having recently raised its global growth expectation again. In the first three quarters, China’s exports grew 12.4 percent year-on-year, with imports up 22.3 percent, which is in sharp contrast to sluggish trade growth in previous years.
Furthermore, I am inclined to believe that China’s economic growth has received support from new impetus, which is mainly reflected in the Internet plus strategy, big data, the Internet of things and other emerging sectors. In the first three quarters, China’s industrial output from strategic emerging industries grew 11.3 percent year-onyear, 4.6 percentage points faster than that of industrial enterprises with an annual revenue of more than 20 million yuan ($3.02 million). It is also said that high-speed rail, mobile payment, the shared economy and online shopping are growing faster in China than anywhere else in the world.
China recorded better-than-expected economic growth in the first three quarters. Against such a backdrop, future economic policy can pay more attention to income distribution, environmental protection and real estate problems. In addition, the government is expected to be more determined about deleveraging in the next year. In light of this, I suggest that the government should lower the economic growth target moderately. Since the better-than-expected economic growth in China in recent years has already offered great help for the target of doubling 2010 GDP by 2020, the growth target could be lowered to 6 to 6.5 percent for the next year so as to create conditions for deleveraging and reform.