19 May 2019

New appraisal system to spur better policies in regions

In the past couple of decades, gross domestic product growth has been the main yardstick by which Chinese authorities have assessed the performance of local officials in the regions. But now, in a key reversal of the earlier approach, the ruling party is formally calling for an end to the GDP obsession.

The Organization Department of the Communist Party’s Central Committee on Monday issued a revised performance appraisal guideline for key regional officials. For the first time in decades, GDP is no longer listed as the paramount gauge of performance. Instead, more emphasis has been placed on work in areas such as education, environment protection, per-capita income enhancement and public healthcare.

Owing to the blind pursuit of GDP growth in the past, China has succeeded in emerging as the world’s No. 2 economic power, but it paid a huge price in the process. Excessive investment and over-development have caused widespread pollution, besides other problems. Total debts of local governments may have hit a whopping 19 trillion yuan (US$3.12 trillion), mainland media quoted a researcher from Tsinghua University as saying.

As GDP diminishes in importance now, it could have a major impact on the political operating environment in the country going forward. With economic growth no longer the main factor that will determine individual careers, local officials will change their orientation when mapping out policies, striking better balance between peoples’ long-term welfare and economic development.

From this perspective, it is logical to reckon that fixed-asset investment, which has seen years of high double-digit expansion — with a considerable portion channeled into the high-energy-consuming and heavy industries to spur GDP growth — will be kept in check from now on.

Heavy industries with excess capacity such as steel and cement will inevitably be restrained by the change in official mindset. Investors should, therefore, exercise caution toward those sectors as well as infrastructure plays such as China Communication Construction Co. Ltd. (01800.HK) and Lonking Holdings Ltd. (03339.HK).

– Contact the writer at [email protected] 


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