One of the more depressing pieces of economic news to come into my inbox recently was this piece in the Chinese-language Economic Information Daily. I translate the first paragraph below:
The Fifth Plenum will be held in October this year to research and draft the proposal for the 13th Five-Year Plan, but the Economic Information Daily has learned that as of now it is still undecided whether the economic growth target will be 6.5% or 7%. Economists have different views on China’s potential economic growth rate over the next five years, but most of them think it should be over 7%.
This is depressing because it appears to indicate (with the usual caveats about the reliability of Chinese press reports) that there is hardly any meaningful debate about China’s economic prospects at the highest level of policymaking. If the question is whether the growth target for 2016-2020 should be the same as the previous five years, or half a percentage point slower, then that’s not even asking the right question. It is also disappointing because there had previously been some discussion about whether the next five-year plan should jettison GDP growth targets entirely, and instead target other indicators more directly related to the welfare of its population (maybe China could do something crazy like, I don’t know, target inflation and unemployment instead?). A move away from the fetishization of GDP numbers and toward more realistic policymaking in China is desperately needed, and right now I’m not feeling so optimistic that it is coming.
To get a sense of the problem, sample the rest of the commentary in the article, which features quotes from lots of big names–the type of economists who speak at conferences, write op-eds and get asked to advise the government. Hu Angang, a prominent Chinese economist who has been on the academic advisory commission for a few five-year plans now, is quoted as recommending a growth target of “about” 7% for the next five-year plan period (2016-2020). He says this would imply that anything from 6.6% to 7.4% would be an acceptable growth rate, but that 6.6% would be a “floor” for growth. Peking University economist Liu Wei says potential growth will be 7% or higher until 2023. Fan Gang, another well-known economist from one of the main non-government think tanks, also thinks future growth should be 7% or higher. Wang Yiming of the Development Research Center, a major in-house government think tank, also plumps for 7%. A more cautious view comes from China Banking Association economist Ba Shusong, who warns that because of the exhaustion of the demographic dividend and slower exports, GDP growth is likely to slow to 6.5% over the next five years.
Is it just me, or is it feeling like an echo chamber in here? Of course, it is easy to find Chinese economists who are not wedded to the view that GDP growth will never fall below 7% (I even work with some). But the point is that the public discussion of future growth prospects has been extremely impoverished of late. For all the recent propaganda about a “new normal” that requires some tough adjustments to slower growth, there is little public discussion of scenarios other than continued steady 7% growth. While in the international media you can read about a full range of possibilities, from crash to boom, in the official Chinese press you rarely see numbers other than 6% or 7% growth (or even 8%–I have on this blog previously criticized Justin Lin’s insistence that growth will be 8%). It feels like the topic of future growth rates has become so politicized that, whatever people’s private views, they have little incentive to publicly argue that China should prepare for lower growth. And if that means no one is preparing for lower growth, then we have a problem.
Out in the real world, it is pretty obvious that growth will head below 7% during the next five-year plan period, thanks to extremely high debt levels, the end of a decade-long housing boom and a severe slowdown in private-sector investment. The IMF, hardly a bastion of radical views, is forecasting 6.8% GDP growth for this year, and said in its Article IV review last week that China should look for growth of 6.0-6.5% in 2016. The IMF is urging China to accept this slowdown to what it calls “safer and more sustainable” growth rates, and adapt policy to this trend. I sure hope they succeed.