China Daily | Focus on Quality Growth Expected

China Daily, March 4, 2018

The quality rather than just the quantity of China's economic growth is expected to be high on the agenda as China's political leaders and officials gather in Beijing for the two sessions, according to experts.

One of the main focuses of the two sessions each year is usually the annual GDP growth target, which is set in the Government Work Report, due to be delivered this year by Premier Li Keqiang on Monday.

However, with achieving high-quality growth now a government priority, at least equal attention is likely to be given this year to how China intends to tackle industrial overcapacity, excess debt, income inequality and poverty reduction, as well as environmental degradation, while also pursuing development.

Stephen Roach, a senior fellow at Yale University's Jackson Institute for Global Affairs and former Asia head and chief economist of investment bank Morgan Stanley, said it is important for the world's second-largest economy to secure a sustainable future.

"The senior Chinese leadership has stressed the need for a more sustainable growth model－namely, by shifting from resource-intensive manufacturing to resource-light services. Only then can China enjoy the quality dimension of the growth experience," he said.

"China is making good progress toward higher quality growth. But the journey has just begun," Roach added.

Zhu Ning, Oceanwide professor of finance at Tsinghua University, agreed there will be major emphasis on high-quality growth at the annual plenary meeting of both the National People's Congress, China's highest legislature, and the National Committee of the Chinese People's Political Consultative Conference, the country's top political advisory body.

He said the importance attached to a new and more inclusive growth strategy was made clear at the Central Economic Work Conference, a key meeting held in Beijing in December.

"The focus now is on the development of the overall economy. People have criticized China's growth about being all about growth's sake and not about development. We want broader-based, more inclusive development than just the growth of the number," he said.

With China expected to contribute 35 percent of global growth this year, according to the International Monetary Fund, financial markets across the world will also be paying close attention to the government's growth target.

Last year, the figure was set at "around 6.5 percent, or higher if possible" and was comfortably achieved, with GDP rising 6.9 percent in 2017－the first time annual growth has accelerated since 2010.

China still needs to grow at a relatively fast pace to meet the government's aim of becoming a "moderately well-off society" by 2020, in time for the 100th anniversary of the founding of the Communist Party of China the following year. To achieve this, it needs to double the 2010 GDP per capita income level. George Magnus, an associate at the Oxford University China Centre and an expert on China's economy, said he expects the government target to remain at "around 6.5 percent".

"China looks to me to be well on course to meet the 2020 goal. On my reckoning, 6.2 percent per annum for each of the next three years should do it. So there is even a bit of a cushion if things go slightly awry for any reason. China can now afford a bit of a trade-off between the quantity and quality of growth in future," he said.

Louis Kuijs, the Hong Kong-based Asia head of economics consultancy Oxford Economics, also said he expects a target in line with the 6.5 percent of last year, although he believes there are risks of excessive credit growth to achieve it.

"Since China's leadership is intent on meeting the 2020 target, it is likely it will be met, even though this implies only a moderate slowdown in credit growth with credit already continuing to outpace nominal GDP growth this year."

Douglas McWilliams, deputy chairman of the Centre for Economics and Business Research, a London-based economics consultancy, said the major risk of China not meeting its 2020 target comes from global factors outside of Beijing's control.

"The goal is likely to be met, but it is not certain. There is a major world recession building up as the global debt problem unwinds. My best guess is that this will emerge between 2020 and 2025. China will be much more affected this time than it was by the global financial crisis," he said.

It has been suggested that China may soon move away from setting ambitious growth targets.

Neither of the long-term targets of becoming a global technology leader by 2035 or a "great modern socialist country" by 2050 set out by General Secretary Xi Jinping in his report to the 19th National Congress of the CPC in October came with numbers attached.

"It is still an open question," Kuijs added. "Clearly, many experts, including me, would recommend abandoning specific targets for growth. Setting targets, however, remains a crucial element of economic policymaking in China's vast government system."

The two sessions take place as China is marking the 40th anniversary of Deng Xiaoping's reform and opening-up, which led to China opening up to the rest of the world and a transformation of the economy.

Zhu at Tsinghua University said it is important not to regard any transition to high-quality growth as a move away from the principles that were the basis of reform and opening-up.

"I don't think we are approaching a big watershed moment where we are moving in to a new growth model. Reform and opening-up was about the market playing an increasingly big role in determining the allocation of resources. I think this path will remain the same. The difference is that the targets are changing fundamentally."

Edward Tse, chief executive of Gao Feng Advisory, a management consultancy, said he believes China is in the process of moving on from its post-reform and opening-up phase.

"China is entering into a new era, and it is one that is epitomized by both confidence and sophistication. It is also one based on knowledge, innovation and a strong will to drive critical global governance and leadership issues," he said.

Tse said he believed the new era will combine a role for state direction and a burgeoning private sector.

"The top-down central government directive will continue to be strong. There will also be a role for local governments in the middle layer both competing and collaborating to provide further impetus for driving growth."

Roach said the major challenge for China in the future will be fitting into a world where it is now a dominant player rather than a developing nation that is catching up.

"There has to be a daunting reassessment of how China's shifting trajectory fits into the broader world－both from an economic and a geostrategic perspective."

He said that while China was emerging, its economy was dependent on the rest of the world, particularly for demand for its cheap exports. Now, however, this dynamic has totally shifted, with the rest of the world having a new dependency on China, he said.

"China is now playing an increasingly important role in driving and shaping the rest of the world," Roach said.

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