The political history of China’s economic growth targets

Growth targets are back and stronger than ever in China’s next Five-Year Plan, for 2016-2020. The plan itself is not finalized–the government has just published its “suggestions” for the final document–but it is pretty clear that the main thrust has already been decided. One of the most striking points in the official narrative is the strong emphasis on maintaining a high rate of GDP growth; to me, unrealistically high. Previously, there had been much discussion about abandoning the GDP growth target in the five-year plan, or replacing them with other indicators more directly related to household welfare (maybe China could even do something crazy like target inflation and unemployment). In the event we seem to have an even stronger emphasis on growth targets–the question is why? To start with, here’s Xi Jinping himself explaining the plan (my translation from the Chinese):

The draft suggestions put forth a goal of maintaining medium-high speed economic growth for the next five years. The main consideration is that in order to achieve the goal for 2020 of doubling our 2010 gross domestic product and per-capita rural and urban incomes, we must maintain the necessary growth rate. In order to double GDP, the bottom line for the average economic growth rate for 2016 to 2020 is 6.5% or higher. … Major domestic and foreign research organizations all think that in the Thirteenth Five-Year Plan period our country’s potential economic growth rate is 6-7%. Taking everything into consideration, it is possible for our country to maintain growth of about 7% in the future, but there are numerous uncertain factors.

It’s interesting how Xi presents the growth target as just a necessary consequence of another, more important goal: doubling 2010 GDP by 2020. And indeed there is no problem with his arithmetic: given how much the economy has grown since 2010, to double that level in 2020 requires annual growth of at least 6.5% after 2015. The GDP-doubling target is itself the specific expression of a general slogan: to make China a “moderately prosperous” (xiaokang) society by 2020. Xi has emphasized this target as one of his “two centenary goals“: achieving prosperity by the 100th anniversary of the Party’s founding in 2021, and achieving modernization and national revival by the 100th anniversary of the founding of the People’s Republic in 2049. Official propaganda under Xi has made a big deal out of these two centenary goals, but in fact they are not that new, and indeed were inherited from previous leaders. Xi’s immediate predecessor, Hu Jintao, said in his speech to the 18th Party Congress in 2012:

We need to have a correct understanding of the changing nature and conditions of this period, seize all opportunities, respond with cool-headedness to challenges, and gain initiative and advantages to win the future and attain the goal of completing the building of a moderately prosperous society in all respects by 2020. Basing ourselves on China’s actual economic and social development, we must work hard to meet the following new requirements while working to fulfill the goal of building a moderately prosperous society in all respects set forth at the Sixteenth and Seventeenth National Congresses of the Party. The economy should maintain sustained and sound development. Major progress should be made in changing the growth model. On the basis of making China’s development much more balanced, coordinated and sustainable, we should double its 2010 GDP and per capita income for both urban and rural residents.

But as Hu emphasized, this was not a goal that he came up with himself–it was one set by his predecessor Jiang Zemin. In 2002, at the 16th Party Congress, Jiang said:

An overview of the situation shows that for our country, the first two decades of the 21st century are a period of important strategic opportunities, which we must seize tightly and which offers bright prospects. In accordance with the development objectives up to 2010, the centenary of the Party and that of New China, as proposed at the Fifteenth National Congress, we need to concentrate on building a well-off society of a higher standard in an all-round way to the benefit of well over one billion people in this period. … On the basis of optimized structure and better economic returns, efforts will be made to quadruple the GDP of the year 2000 by 2020, and China’s overall national strength and international competitiveness will increase markedly.

This was actually a more precise formulation of the growth goal than Jiang had given previously. Here is what he said at the 15th Party Congress in 1997:

Looking into the next century, we have set our goals as follows: In the first decade, the gross national product will double that of the year 2000, the people will enjoy an even more comfortable life and a more or less ideal socialist market economy will have come into being. With the efforts to be made in another decade when the Party celebrates its centenary, the national economy will be more developed and the various systems will be further improved. By the middle of the next century when the People’s Republic celebrates its centenary, the modernization program will have been accomplished by and large and China will have become a prosperous, strong, democratic and culturally advanced socialist country.

There you have it: the original formulation of Xi’s two centenary goals was actually made in 1997. But it is also clear that the history goes back even further, as those goals were very directly inspired by a previous declaration from Deng Xiaoping himself, in remarks on April 30, 1987:

Our goal for the first step is to reach, by 1990, a per capita GNP of US$500, that is, double the 1980 figure of $250. The goal for the second step is, by the turn of the century, to reach a per capita GNP of $1,000. When we reach that goal, China will have shaken off poverty and achieved comparative prosperity. When the total GNP exceeds $1 trillion, the national strength will increase considerably, although per capita GNP will still be very low. The goal we have set for the third step is the most important one: quadrupling the $1 trillion figure of the year 2000 within another 30 to 50 years. That will mean a per capita GNP of roughly $4,000 — in other words, a medium standard of living. That target may not seem high, but it is a very ambitious goal for us, and it won’t be easy to achieve.

We are now confident that we can attain our first goal ahead of schedule, this year or next. That doesn’t mean it will be easy to reach the second goal, but I think we can do it. Our third goal will be much harder to reach than the first two. Our experience over the last eight years or so shows that the road we have taken is the right one. But it is only after the third step that we shall really be able to show the superiority of socialism over capitalism — that’s something we can’t prove at the moment. We shall have to work hard for another 50 or 60 years. By then, people of my age will be gone, but I have no doubt that the younger generations will reach the third goal.

(Deng also made a slightly different statement of those goals on April 26 of the same year). This formula became known as the “three-step” development strategy, and Jiang’s version in 1997 as the “new three steps.” Deng also originated the term xiaokang, now conventionally translated as “moderately prosperous,” which he chose to convey a modest aspiration for ordinary people to have a better life.

This historical context makes it easier to understand why these GDP targets are politically so important: they are a way by which successive Chinese leaders have tied themselves to the legacy of Deng Xiaoping, and thereby increased their own legitimacy. By saying he is committed to the goal of doubling GDP by 2020, Xi Jinping makes it clear that he is carrying on the weighty tasks undertaken by his predecessors, and is continuing the great legacy of the Communist Party. In other words, there is no real economic justification for picking a certain rate of GDP growth to target; it is all about the political symbolism (all that stuff you read about China needing to grow 7% a year to prevent social unrest is total nonsense).

This kind of political symbolism was a mostly harmless feature of Chinese politics in earlier years, because the growth potential of the economy was so high that setting these arbitrary growth targets had little impact on actual economic policy. Until very recently, there has rarely been a year in which actual GDP growth did not exceed the target by a wide margin. China’s problem now is that its growth potential is declining, and failing to meet the growth targets has become a real risk (indeed, a near-certainty). Reformers in Deng’s day promoted fast growth as a way to break free of the legacy of the planned economy; in today’s China, reformers worry that targeting fast growth creates too many costs, environmental and otherwise, and gets in the way of structural changes that would improve welfare over the longer term (even if few are willing to publicly challenge the view that potential growth is still 7%). So the growth targets for 2016-2020 will have a greater and more malign influence on policymaking, because they will start to actually affect decisions on a regular basis.

growth-targets

Was it inevitable for China to end up in this trap, where it is held hostage to unrealistic growth targets inherited from previous generations of political leaders? Of course not. If you look at Deng’s original formulation, it was quite vague about the longer term: he did call for quadrupling the GDP of 2000, but said it might take anywhere from 30 to 50 years. When Jiang initially set his goal for the Party’s centenary in 2021, he did not say that GDP had to exactly quadruple by that date, only that it should rise substantially. It was only later on that Jiang formalized the goal into a quadrupling of GDP over the 20-year period. Even then, his successors could have easily shifted the rhetoric: for instance, retaining the goal of achieving “moderate prosperity” by 2020, but dropping the precise definition in terms of GDP. But China’s leaders have been so desperate to gain the political legitimacy that comes from a link to Deng’s legacy that they have been unable to make even such modest changes.

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