China Lowers Official Economic Growth Target

 Nytimes

HONG KONG — China on Thursday lowered its economic growth target for this year to “approxmately 7 percent,” a significant if widely anticipated development that signals the Communist Party’s determination to shift to more sustainable development.

In an annual report to the National People’s Congress, the Party-controlled legislature, Prime Minister 

Li Keqiang set a target for gross domestic product to rise by around 7 percent this year. That is down from a target of around 7.5 percent that the government set for 2014, which it missed by a whisker. Last year’s actual expansion of 7.4 percent was the country’s slowest since 1990.

Under President Xi Jinping, who came to power in late 2012, the Chinese leadership has been trying to reduce the country’s reliance on credit-fuelled investment—a growth model that elevated China to the world’s second biggest economy, after the United States, but one that led to a host of problems including soaring government and corporate debt levels, a property market bubble, wasteful investments and environmental degradation.

In their push to shift the economic model to one more reliant on market forces like consumer demand, China’s leaders have repeatedly signaled this will mean a slower topline growth rate for the economy. In his report on Thursday, Mr. Li reiterated this stance.

“China’s economic development has entered a new normal,” Mr. Li said, a nod to one of the key slogans of Mr. Xi’s political agenda. “Systemic, institutional and structural problems have become ‘tigers in the road’ holding up development. Without deepening reform and making economic structural adjustments, we will have a difficult time sustaining steady and sound development.”

China last lowered its annual G.D.P. target in 2012, reducing it to 7.5 percent, down from the 8 percent level where it had been fixed since 2005. Before 2014, the last time China missed a growth target was 1998, in the wake of the Asian currency crisis, when G.D.P. came in at 7.8 percent against a target of 8 percent.

In his report, Mr. Li also set a consumer price inflation target of 3 percent, down from last year’s 3.5 percent target—a nod to notable disinflationary forces at work in the economy, where consumer price inflation hit a five-year low in January.

“Stepping down G.D.P. targets to 7 percent demonstrates the reality of China’s potential current growth, and the reality that the Xi leadership is dealing with the problems that come with reform rather than the problems that come with deferring reform through further monetary permissiveness,” said Daniel H. Rosen, founding partner of the Rhodium Group, an economic research and advisory firm.

By shifting to a softer growth target of “around” a certain percent, the government is also signaling its intent to focus more on the composition of economic growth rather than its absolute pace. But doing away with targets altogether would be a step to far for China at the moment.

Setting a softer growth goal represents “a helpful step away from the tradition of specifying a target,” Mr. Rosen said. “For now, however, too many aspects of China’s fiscal system still rely on this annual touchstone to abolish it altogether,” he added.