As the global economic recovery remains elusive, Chinaslashes its growth target to its lowest level since 2004, seeking to rebalance the economy and reshape development.
The Asian Powerhouse has recently set its gross domestic product growth target at 7.5% for 2012, cutting down the economic growth targets from the longstanding level of 8%. The Chinese Prime Minister Wen Jiabao announced this ‘relatively cautious’ target in a speech in parliament’s annual meeting — a measure to relieve pressures on the economy in terms of inflation, energy, resources and environment. The growth estimate, however, was in line with most analyst expectations of a drop from the longstanding annual goal.
Earlier, after the 2008-2009 global financial crisis, China faced bubbles in the property market with high inflation. High consumer prices, especially the cost of food caused unrest in China. Inflation rose by 5.4% in 2011, higher than the government target of 4%. However, the Chinese economy expanded by 9.2% in 2011, slowing from a blistering 10.4% in 2010, as global turbulence and efforts to tame high inflation halted growth.
The new target is an official acknowledgement that the economy is slowing as the eurozone debt crisis continues and the United States experiences sluggish recovery. The move reflects the government’s focus on economic restructuring and quality-of-life issues viz, the environment and income inequality, rather than singularly focusing on growth. The target relaxation aims to promote steady and robust economic development, keeping stability of prices and guarding the economy against financial risks, as well.
The premier has set a priority to boost consumer demand with the promise to improve policies encouraging consumption. This may be seen to vigorously adjust income distribution, increase the incomes of low- and middle-income groups while enhancing people’s ability to consume. The inflation target of 4%, with a projected money supply growth of 14% has been sustained at last year levels. The fiscal deficit is targeted at 1.5% of GDP, up from the 1.1% of GDP in 2011.
With the aim of strengthening supervision of local government debt and guard against risks, the prime minister vowed to defuse rising local government debt, one of the main sources of concern economically. Moreover, the government retains its target to promote balanced growth moving away from exports. In this context, the issue of China’s trade ministry recently banning Vale S.A‘s (VALE) 400.000-deadweight-ton “Valemax” vessels, along with other giant freighters and tankers–need special mention. The move came in as a protective measure to guard the Chinese ocean-freight industry and curb exports of iron ore– straining the country’s trade relations with Brazil. Such export banning moves are optimistic but has made little progress till date.
China has also planned to increase government spending to 12.4 trillion yuan, up 14.1% y/y, which will help to cover another hefty bump in the domestic security budget. An effective resolution of various types of conflicts, risks and dangers; prevention of isolated problems from growing into major ones; and promotion of social harmony and stability may help to reduce the defense spending estimation of 670.3 billion yuan ($106.4 billion).
In his speech, Wen also discussed about the farmer’s rights on their land, on which they have contracts to work, houses to dwell and extract proceeds from collective undertakings. These rights come under the property rights conferred by law, which should not be violated.
In this context, mention may be made of Government seizures of land–which was a key source of discontent in China, leading to a major revolt in December 2011 in Wukan village. The government was concerned about the rural migrant workers and assured to provide more services to them, placing farmland under strict protection.
Shifting focus to agriculture, China, the world’s second-biggest corn grower, recently proclaimed offering of favorable regulations and protections to the foreign agri-business companies–encouraging them to work with the Chinese seed producers for raising crop yields. With this newly drafted government policy, Monsanto Co. (MON), the world’s biggest seedmaker, has planned to boost investment in China at par with its investment in Brazil. Currently, China is offering favorable regulations and protections that help address concerns of the foreign investors about protection of their intellectual property. However, this conjecture may raise eye brows–regarding how the nation will balance its export ban policies in some sectors to wean the economy off dependence as compared to the inflow of foreign investment in some others?
Most decisions are made ahead of time. Still, the recent growth target announcement keys in the direction of political winds. The recent growth target, regarded more as a guideline than a serious goal, is announced by the premier at the annual National People’s Congress meeting. It was the last legislative gathering before the handover of power later this year, with both the premier and President Hu Jintao standing down.
Prior to the meet, the president-in-waiting Xi Jinping reiterated China’s support for Europe in addressing its current debt woes. Xi reminded that China still remains the world’s second-largest economy with US$3.2 trillion (HK$24.96 trillion) in foreign exchange reserves. However, he expressed concerns that the nation still has 150 million people, whose daily living expenses are less than US$1. Winds
Critics, including prominent policy-advisers, however, believe that the slower growth numbers just reflect the reality of a slower Chinese growth on a weakening world platform. They suggested bolder reforms to rein in state-owned conglomerates and other entrenched interests that may foster healthy long-term growth reforms that they consider to ultimately spill into ‘sensitive issues of curbing the party’s own powers’.
With time, this pondering ‘7.5%’ growth figure may depict a slightly lower target or may aim at accelerating the transformation of economic development; but Wen’s “state of the nation” in his words still upholds the government’s age-long intention to “achieve a higher-level, higher-quality development over a longer period of time”.
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