Home' Trinidad and Tobago Guardian : February 4th 2016 Contents BG22 INTERNATIONAL
BUSINESS GUARDIAN www.guardian.co.tt FEBRUARY 4 • 2016
On January 19 China declared
that its gross domestic prod-
uct had grown by 6.9 per
cent in 2015, accounting for
inflation---the slowest rate
in a quarter of a century. It
was neatly within the government s target of
"around 7.0 per cent," but many economists
wondered whether the figure was accurate.
Online chatter in China about questionable
GDP numbers was fueled a week later by the
arrest of the man who had announced the
data: Wang Baoan, the head of the National
Bureau of Statistics. The country s anti-graft
agency accused him of "serious disciplinary
violations," a euphemism for corruption.
Beyond all the justifiable doubts about the
figures, however, lies another important ques-
tion: why does China have a GDP target at
all?It is the only large industrial country that
sets one. Normally central banks declare spe-
cific goals for things such as inflation or unem-
ployment. The idea that a government should
aim for a particular rate of output expansion,
and should steer the economy to achieve that,
In the case of China, which is trying to wean
its economy off excessive reliance on GDP-
boosting---but often wasteful and debt-fuel-
ing---investment, it is risky. It is inconsistent
with the government s own oft-repeated
mantra that it is the quality of growth that
matters, not the quantity.
In the past, setting a target may not have
made much difference. For all but three of the
years between 1992 and 2015, China s growth
was above target, often by a big margin. A
rare period when targets seemed to affect the
way officials tried to manage the economy
was from 2008 to 2009, when growth fell
sharply. It would be hard to argue that targets
themselves have been responsible for China s
overall record of impressive growth in recent
Now, however, the economy is slowing. This
is inevitable: double-digit growth is no longer
achievable except at dangerous cost---total
debt was nearly 250 per cent of GDP in the
third quarter of 2015. The government is wor-
ried that the economy may slow too fast, how-
ever, and that this could cause a destabilising
surge in unemployment. Thus it has been
ramping up investment again, and goading
local governments to do the same by setting
a high growth target.
For a while there were signs that the lead-
ership itself had doubts about the merits of
GDP target-setting. In 2013 Xinhua, an official
news agency, decried what it called the coun-
try s "GDP obsession." Each level of govern-
ment sets its own GDP target, often higher
than the national one, and by the next year
70 or so counties and cities had scrapped their
targets. In 2015 Shanghai joined them, becom-
ing the first big city to break with orthodoxy.
Liu Qiao of the Guanghua School of Manage-
ment at Peking University said that the central
government ought to follow suit.
Last year there were hints that it might.
Prime Minister Li Keqiang said that the gov-
ernment would not "defend (the target for
2015) to the death." In October, talking about
the government s work on a new five-year
economic plan, which will run from 2016 to
2020, President Xi Jinping avoided mentioning
a number. That raised expectations that targets
might at least be downplayed, if not aban-
They have not been, however. An outline
of the five-year plan, unveiled in November,
contained the usual emphasis on growth. Xi
appeared to change his tune, saying that expan-
sion must average at least 6.5 per cent a year
until 2020. Many economists believe that will
require even more debt-inducing stimulus.
A GDP target for this year is all but certain
to be announced, as usual, at the annual session
of the legislature in March, when the five-
year plan will be adopted. It probably will be
higher than 6.0 per cent. Speculation that the
government might set a target range in order
to give itself more policy-making flexibility,
as the International Monetary Fund and the
World Bank have urged, has ebbed. In Decem-
ber some national legislators complained that
local governments were busting their debt
ceilings because there was "still too much
emphasis on GDP."
Why is there still a target?
The reasons are political. In a country so
large, central leaders are always fearful of losing
their grip on far-flung bureaucrats. Setting
GDP targets is one means by which they believe
they can evaluate and control those lower
Local officials also are judged by environ-
mental standards, social policies and what the
Communist Party calls "virtue"---that is, being
uncorrupt and in tune with the party s latest
interpretation of Marxist doctrine---but GDP
usually is the most important criterion, having
the attraction of being roughly measurable.
A study in 2013 by Deng Yongheng of Sin-
gapore National University and Wu Jing of
Tsinghua University in Beijing looked at the
careers of officials who had worked as mayors
in 283 cities. It found that those who presided
over higher growth rates in their cities, relative
to the rates notched up by their predecessors,
had gotten better jobs afterward. Since the
study was conducted, there has been little
sign of any change in this pattern.
Depressingly, the academics found that, the
more the mayors had increased investment in
environmental protection, the lower their like-
lihood of being promoted had turned out to
be. The government finds environmental tar-
gets more difficult to set than growth ones.
The Environment Ministry is trying to create
a measure of "green GDP"---roughly, output
minus the cost of environmental damage---
that could be used to assess the performance
of local officials. However, it had a stab at this
before, in 2004, and got nowhere: The damage
proved too tricky to calculate.
At higher levels promotion is determined
in part by which faction an official belongs
to. The lower down the hierarchy a govern-
mental entity is, however, the more it is likely
to be judged by GDP.
When the prime minister suggested that
GDP targets might not be all-important, many
people complained. One academic said that,
without such targets, local officials would not
know what they are supposed to be doing. At
a time when Xi s anti-corruption campaign
is causing many nervous officials to sit on
their hands to avoid graft-busters attention,
party leaders are all the more unwilling to
abandon an appraisal system which, however
imperfectly, holds officials to account and can
goad them into action.
As Chinese leaders see it, the target has
another use. It provides numerical evidence
for their proclaimed efforts to make China
rich. Deng Xiaoping set the trend by declaring
in 1980 that China would quadruple its G.D.P.
of that year by the end of the century, a goal
that it achieved several years early. Andrew
Batson of Gavekal Dragonomics, a research-
and-advisory company, pointed out that, when
Xi unveiled his 6.5 per cent target, he set it
in the context of a broader, Deng-like objective:
that of doubling the level of GDP attained in
2010 by the end of the decade.
Xi apparently believes that a growth target
is necessary in order for China to become a
"moderately prosperous society" by 2021, the
100th anniversary of the party s founding.
That is one of what the party calls its two
"centenary goals." The other is for China to
become "prosperous and strong" by 2049,
the 100th anniversary of Communist rule.
These aims were first proclaimed by then-
President Jiang Zemin in 1997---inspired, it
appeared, by Deng, who had been the first to
speak of a need to make China "moderately
The paradox is that, by fixating on growth
targets, China may end up badly damaging
its economy, rather than fulfilling its goals.
@2016 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
China's grossly deceptive plans
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