China sent its clearest signal yet on Tuesday that the world’s second-largest economy would lower its growth targets, with President Xi Jinping saying that expansion of only 6.5 percent a year would be enough to meet its goals.
Xi’s comments came as the ruling Communist party issued guidelines for its next five-year plan, a release being carefully watched by global investors spooked by the country’s economic slowdown.
The documents, whose release followed a leadership conclave held in Beijing last week, did not include a numerical growth target.
But according to the official news agency Xinhua, Xi said that annual growth should be no less than 6.5 percent in 2016-2020 if the country is to double GDP and incomes from 2010 levels by the end of the decade.
The target is part of achieving what the Communist Party calls a “moderately prosperous society” in time for the 100th anniversary of its foundation.
“In the next five years, China’s development should not just be focused on growth pace, but also growth volume, and, more importantly, growth quality,” Xinhua quoted Xi as saying.
The agency described the 6.5 percent figure as “China’s bottom line” for the period.
The comments are the clearest indication yet that Beijing will reduce its target growth rate from the current “around seven percent”, after expansion slowed last quarter to its lowest pace in six years.
Some economists say that the current figure is unattainable going forwards, and that trying to achieve it risks derailing painful but necessary market reforms.
China has faced economic turbulence in recent months as it attempts to transition its economy from years of super-charged growth to a more modest pace it has dubbed the “new normal”.
Botched stock exchange interventions and a sudden currency devaluation have rattled confidence in the country’s leadership, which has staked its legitimacy on maintaining an aura of economic infallibility.
Asked about a 6.5 percent growth target, Xu Shaoshi, chairman of the National Development and Reform Commission, China’s top planning body, said the ruling party had decided to “maintain medium to high speed economic growth during the 13th five-year plan” to meet the doubling target.
But he added: “Of course, speed is not the only thing we care about. Actually we are more concerned about indicators such as employment, residents’ income and prices.”
– ‘Structural problems’ –
An official expansion target of “about” 7.5 percent was set for last year. The goal has traditionally been pegged at a level that is usually exceeded, and nowadays usually approximated to provide wiggle room for positive spin just in case.
It has not missed its mark since 1998, during the Asian economic crisis, but Premier Li Keqiang, who oversees the economy and is the country’s second most senior official, has repeatedly dismissed concerns about undershooting the benchmark.
Li has instead emphasised the importance of indicators such as job creation — a key factor in supporting consumer confidence.
Beijing’s fixation on achieving its GDP targets has led it to focus on growth at all costs, experts say, causing it to put off key structural reforms and ignore the effects of the country’s dependence on heavy industry powered by cheap but dirty coal.
The country’s 1.37 billion people have become increasingly angered by regular bouts of choking pollution, and administrators’ efforts to fix the economy’s structural issues have been suffocated by constrictive growth targets.
“The 6.5 percent growth target is achievable as per capita income is still low in China and there’s still much potential for growth,†Liu Ligang, chief economist for Greater China for ANZ Banking Group, told AFP.
“But structural problems will pose a difficulty for China’s growth, including the heavy debt of corporations and local governments.”
– ‘Freely usable’ yuan –
The guidelines for the five-year plan call for realising full convertibility of China’s yuan currency in an “orderly” way from 2016-2020, though the document did not make explicitly clear whether that would be achieved during the period.
The pledge came ahead of an impending decision by the International Monetary Fund on whether to include the yuan — also known as the renminbi — in its internal “special drawing rights” (SDR) reserve currency basket.
The Communist Party called for “an orderly realisation of the renminbi’s convertibility on the capital account”, according to the document.
The country would promote the yuan in joining the SDR grouping, so that it could become “a convertible, freely usable currency,” it said.
China wants to promote the yuan as a global reserve currency alongside the dollar, an ambition that depends on its willingness and ability to loosen tight restrictions on its trade.