It has been a source of pride for Chinese policymakers that they have not missed their national growth target in modern times. After data published on Friday showed the lowest gross domestic product growth in decades — ending an era of uninterrupted expansion — Beijing should now abandon the target entirely.
GDP in the first three months of the year plummeted by 6.8 per cent year on year, according to the National Bureau of Statistics, marking a historic contraction in the world’s second-largest economy. China has reported such quarterly data since 1992 but the last time China officially acknowledged a year-on-year decline in economic output was during the horrors of the Cultural Revolution in the 1970s. This time, it is the shock of the coronavirus outbreak that has done the damage.
The contraction was not a surprise. It has been clear for months that China and the ruling Communist party face some of their biggest challenges in a generation.
But the storm has also created a clear opportunity for reformists.
The severity of the outbreak in China led to the postponement of the annual session of China’s rubber stamp parliament that is usually held in early March. The event is used to deliver the year’s GDP target, one of the most closely watched indicators for the health of the Chinese economy. With the National People’s Congress now delayed until later in the year, China has yet to publish an official growth target.
Ma Jun, a policy adviser to the People’s Bank of China, argued earlier this year that the national growth targets should be ditched. Setting such a goal as the country reopens after months of lockdown would lead to a flood of stimulus money that could paralyse the banking sector with bad debt, he said.
The target itself has rarely been used by serious economists as a true reading of the country’s growth rate. It is a signal from policymakers of how many resources they are willing to expend to boost the economy — and the level of reform they will withstand. Lower or flexible targets are often read as a sign of confidence.
But the growth target is really an exercise in wastefulness.
It leads provincial officials to generate production regardless of the real level of demand, leading to a degree of oversupply that has burdened the economy for a decade.
Debates over scrapping the growth target have raged for years. But the outbreak of coronavirus and the cancellation of the NPC offer a new opportunity to cast out an goal that carries more risk than meaning.
However, it will not be easy for Xi Jinping, China’s president, to get rid of the growth target. Years before he took China’s top leadership position, a goal was put in place to double GDP between 2010 and 2020 — just in time for the Communist party’s 100th anniversary. Missing that longer-term target would be potentially embarrassing for a president who has said the party must be a “leader of all”.
The best indicator of China’s economic wellbeing this year will not be the growth rate the government seeks to hit. It will be whether or not the target exists at all.