China’s economic shift fuels global concern

By ditching a formal growth target for this year, Beijing is acknowledging global uncertainty amid the coronavirus pandemic.

Scrapping the GDP target ‘is a recognition of realities’. Picture: AFP

By ditching a formal economic growth target for this year, China’s leaders are acknowledging continued global uncertainty amid the coronavirus pandemic.

But the move could also mark the beginning of the end for a key performance metric that has long undergirded policy decisions for Chinese government officials.

The world economy is likely to feel the impact as Beijing accelerates its shift away from a decades-long fixation on achieving a specific, rapid pace of economic expansion to a focus on other goals, though at a slower growth rate. This transition will drag on China’s demand for the world’s natural resources, finished goods and services.

Premier Li Keqiang said in May that China would forgo this year’s annual growth target. Over the course of the past 2½ decades of blistering growth — including eight years in double digits and 6.1 per cent last year — the annual target for gross domestic output growth served as an explicit manifestation of the implicit bargain between Beijing and the ­public: acquiescence on many political and social issues in exchange for rising prosperity.

As growth has tapered off and demands for other improvements have grown, Chinese officials have in recent years been expected to fulfil an increasingly wide range of goals, including ­ensuring social stability, keeping debt in check, eliminating poverty and cleaning up the environment.

But Beijing still demanded regional officials achieve a growth benchmark, which encouraged them to prioritise certain kinds of policies: attracting investment and encouraging real-estate development and infrastructure.

Without a growth target, these officials will, for the first time in decades, be judged by criteria that don’t include maximising growth.

At least for the rest of this year, chief among those new benchmarks will be their ability to keep coronavirus infection counts at or near zero — a demand that could require restrictions on work, travel and other activities that fuel economic growth.

As Mr Li himself acknowledged on Thursday at a press conference, referring to the tasks of spurring the economy and containing the pandemic: “I’m afraid there’s a level of conflict of interest between these two goals.”

The new incentive structure — out with the growth target, in with pandemic prevention — portends a broader shift in the senior leadership’s thinking on the centrality of economic growth.

Scrapping the GDP target this year “is a recognition of realities, but it’s also a culmination of changes in the incentive structure”, said Houze Song, a research fellow at the Chicago-based ­Paulson Institute’s MacroPolo think tank.