28 January 2020
China's leaders need to strike the right balance between growth and reforms. Photo: Bloomberg
China's leaders need to strike the right balance between growth and reforms. Photo: Bloomberg

GDP target to test China reform pace

How fast will China’s economic reforms proceed under the country’s new helmsmen? That is a question many people in and out of China are asking.

As China’s economic strength grows and its integration with the global economy increases, investors will certainly keep a close eye on any change in the mindset of its policymakers – just like what global investors do as they read every word of a US Federal Reserve statement to get a hint of the direction of the US monetary policy.

The approach the current administration led by Xi Jinping and Li Keqiang will take in the handling of long-stalled reform will have a direct impact on people’s livelihood, investors’ money and the momentum of the world economy.

A proactive approach may probably mean faster appreciation of the yuan, much tighter monetary policies, and hastier deregulation in foreign exchange and interest rate controls. By comparison, a steady approach will see mini-stimulus policies from time to time to go along with measured reforms and relatively ample money supply.

Be it either way, one thing is for sure. It is that Li is more reformist that his predecessor. Reform has become a pet phrase of Li since he took office as the premier in March.

More importantly, he is not indulging in just empty talk. Meaningful economic deregulation that China has adopted so far this year include pruning government approval rights, promoting value-added tax reform, deleveraging the economy with tightened money supply, and lowering the registration threshold for start-ups. Of course, one should not forget the Shanghai Free Trade Zone, a Li brainchild that he feels very proud of.

While one can debate about what exactly has been achieved through these measures, there is however no doubt that the current administration is a pro-reform one.

As the Communist Party of China’s Central Committee members gather in Beijing this weekend, it is highly expected that they will announce major breakthroughs in restructuring the economy and reforming the economic system.

Cutting red tape, breaking state monopoly in major industries, improving the social security network and advancing financial reforms will be some of the key issues to be watched.

All these topics will come up for discussion and it is almost certain that an ambitious roadmap will be given. But the question would be how fast the roadmap will be carried out.

Li was, or appeared to be, a proactive reformist until the end of the second quarter of the year. He seldom stressed GDP growth in his open speeches, and he scoffed at the outdated growth path of the past decade, saying the old way, featuring credit expansion and policy stimulus, should never be repeated. At the time, it was widely speculated that Li’s bottom line of GDP growth stood at 7 percent, with some officials saying privately that Li suggested a growth rate of 6 percent was nothing to be afraid of.

But his tone changed since the GDP growth slowed to 7.5 percent, the government’s yearly target, in the second quarter. Since then, growth was more frequently mentioned by him. And his theory of “reasonable zone” apparently puts the bottom line of GDP growth at 7.5 percent. In his latest speech on economic growth, which he made earlier this month at a meeting with economists and corporate leaders, Li said China will seek a “golden mean” between GDP growth and reform.

“A certain amount of growth is needed to generate new opportunities for the job market, to make ample room for raising the quality and efficiency of the economic structure, and to allow for the economy to progress on a steady and sustainable course,” he said.

Clearly, the current administration has pulled back a bit from the pro-actively reformist stance it adopted in its initial days of office. It has compromised slightly to pressures such as employment and resistance from vested interest groups.

But as both Xi and Li have said recently that reforms would target deep-rooted problems, there are hopes that they would speed up reforms.

As to how fast the reforms will be pushed, next year’s National People’s Congress meeting will offer an answer. If the GDP growth rate is kept at 7.5 percent, it means reforms will be steady, if not slow. If it is revised downward, it means reforms may be quick, and drastic in some way.

Zhang Xinmo, a commentator based in Beijing, has been a journalist for more than 10 years in China and Hong Kong. He writes mostly on China’s economic issues.

– Contact the writer at [email protected]



The writer is an economic commentator. He writes mostly on business issues in Greater China.