Premier Li Keqiang did not mention any growth target in his government report to the People’s Congress today. Some economists or observers may find it difficult to understand why. I identify a number of reasons to explain this.
Firstly, China’s GDP dropped by 6.8% in the first quarter and economic activities in the second have not resumed to full normality. It is difficult to predict the exact outcome of the second quarter. Some economists suggest that China can try to boost fast growth in the third and fourth quarters with extraordinary measures, including monetizing fiscal deficits, but given COVID-19 is still spreading rapidly outside China, it may not be easy for China to attain a very high growth in the second half. As a result, it is difficult to predict how much the exact growth may be.
Secondly, setting a growth target may not be really useful for China to combat the disease and stimulate economic growth at the same time. Instead, the government will focus on employment, the livelihood of the people, the vitality of enterprises as well as the safety of people. If the job market and enterprises are adequately protected and people’s livelihoods is not significantly suffered in the course of fighting the coronavirus, then a concrete growth target is of lesser importance.
Thirdly, in recent years, China’s top priority in social-economic development is growth quality rather than quantity. Quality includes stable prices (including house prices), less environmental pollution, social/economic equality, regional economic convergence, less urban-rural divide, eradication of abject poverty, low financial and other systematic risks, long-term sustainability, and investment efficiency. Were the central government to set a high target, the local governments may try to invest excessively in areas that can promote short-term rapid growth at the expenses of long-term stability and the natural environment. For instance, investments in housing and automobiles may generate short-term high growth but can lead to long-term social and environmental consequences.
Fourthly, China’s long term development goal is prosperity with sustainability, with rising happiness and the health of the populace. Gradually narrowing the gap between China and the developed world can, to some extent, achieve this goal. Due to the pandemic, the US, the EU and many other major economies are set to suffer more severe losses than China. China has successfully contained the disease, but it cannot afford to suffer the second wave of the disease. If people are pushed too hard to drive economic growth without paying sufficient attention to control any potential second round spread of the disease, any growth will become useless or even dangerous. This implies that economic activities should be resumed gradually and steadily to make sure that the chance of a second wave of disease is reduced to zero. At this particular juncture, setting a growth target may indirectly imply that the government cares more of economic growth than of people’s lives.
Although the government does not set a concrete growth target, it does not mean that it does not have development goals in mind. Assuring the “six stabilities” and “six guarantees”, China will achieve its long-term development goals irrespective of whether the government sets a short-term economic growth target or not.
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