China’s latest five-year plan shows central planners are still clearly in the driving seat of the world’s second-largest economy. The country’s leaders have reiterated their pledge to lift GDP by at least 6.5 percent a year until 2020. Though that’s a lower growth rate than in the past, it is still too high. Unrealistic targets distort the economy by delaying rebalancing and boosting debt.
Chinese GDP data have long been viewed with suspicion. Even Premier Li Keqiang, who confirmed the targets at the start of China’s annual parliament on March 5, told a U.S. diplomat in 2007 that he paid more attention to indicators such as rail cargo and power consumption, according to cables released by Wikileaks.
However, the targets remain important because local leaders’ promotion prospects depend on achieving them, regardless of whether their fiefdoms are home to smokestack industries or tech companies.
Take Heilongjiang, the northeastern industrial province that borders Russia. Official growth in the region was about 5.6 percent in 2015, though some cities reported dramatically lower numbers. Economic output in Daqing, China’s biggest oil-producing city, contracted by about a quarter.
Nevertheless, leaders in the province are aiming for growth of at least 6 percent growth this year, while keeping urban unemployment below 4.5 percent. Indeed, Li said that if China’s overall growth rate dipped below the target of 6.5 to 7 percent in 2016 then GDP would have to expand more quickly in future so that the country could realise its ambition of doubling economic output in the decade to 2020. Those goals seem incompatible with sacking millions of workers in the coal or steel industries and clearing smog.
Long-term targets also ignore the risk of external shocks. Global growth is slowing, the European Union is grappling with a migration crisis and the United States could elect a protectionist President. But China only nodded to these threats by not giving an explicit target for foreign trade.
Faced with a choice of accepting the possibility of lower growth or boosting debt, bureaucrats have opted for the latter. That means delaying the pain of meaningful restructuring for another five years.