BOFIT Weekly Review 2015/45
Growth targets problematic for guidance of Chinese economic policy
The Chinese leadership’s recent speeches on the new five-year plan often reference an earlier goal of doubling 2010 GDP and per capita incomes by 2020. Reaching this goal requires average annual GDP growth of at least 6.5 % over the next five years.
These days, however, such numeric growth targets no longer serve economic policy goals. For example, corporate production decisions are driven by other considerations. The irrelevance of growth targets should become even more apparent as economic reforms proceed. Indeed, striving by all possible means to meet numeric growth targets has led to inappropriate investment and piles of unneeded debt as it seems clear that high employment could have been sustained even at lower levels of growth. Thus, there are strong arguments that China should replace growth targets with economic policy targets that apply directly to employment or inflation.
The sensibility of tight growth targets can also be considered in the context of the data. Even if growth over the coming years remains at just 5 % p.a., China’s 2020 GDP would be about 85 % larger than in 2010 and the GDP doubling target would be met in 2022. Such an achievement for the massive Chinese economy can only be seen as impressive, and even more so if achieved through sustainable policies.
Starting this year, numeric growth targets were no longer set for Shanghai and dozens of smaller cities. This is to emphasize the quality instead of the rate of growth.