The first glimpse of China’s thinking on the 13th Five-Year Plan shows leaders long on ambition on sustaining rapid growth, but short on details on how to achieve that objective.
A rush to judgment on the basis of the flimsy first report from the Fifth Plenum would be a mistake. Substantially more details will be available in the days ahead. That said, the initial view of Bloomberg Intelligence Economics is that China’s government has set itself a testing target on growth, which leaves little room for error.
The Fifth Plenum Communique says that the government will set a target of doubling the size of GDP from 2010 to 2020. Based on growth from 2010 to 2014, and expectations for 2015, that suggests a minimum annual growth rate of 6.5 percent from 2016 to 2020. That’s in line with earlier remarks from Premier Li Keqiang and the consensus view from economists ahead of the summit.
A 6.5 percent target is achievable. BI Economics forecasts potential growth at that level in 2020. But it leaves precious little room for error, and adds pressure for officials to bolster output when the focus should be on reform. With some analysts already arguing that the true growth rate is 5 percent or less, it also risks widening the credibility gap between the official data and market perceptions.
Beyond the GDP target, attention will focus on the relaxation of the one-child policy, with all couples now allowed to have two children. That’s an important symbolic move. The immediate impact on the birth rate and the economy will likely be limited for three reasons: the lag before any new children enter the workforce, social pressures that are pushing young people to work harder and start families later, and multiple exceptions to the existing rule.
The 13th Five-Year Plan will focus on a familiar set of reform areas. That includes upgrading manufacturing, a “significant increase” in the share of consumption in GDP, expansion of urban welfare coverage to include rural migrants, a step change in innovation and greener growth. Those are the right priorities, but making progress on intractable social problems with multiple stakeholders won’t be easy.
It’s striking that the reforms where China has made rapid progress in the last five years have been in the financial sector. On areas like interest rate liberalization, there’s a single lever controlled by the central government, and a limited set of stakeholders with power to influence the decision or roll back the results.
For many of the reforms that remain to be done, it’s not that easy. Expanding coverage of urban benefits to migrant workers, for example, is critical to expanding the workforce and freeing household funds for consumption. But it also requires solutions to vexed questions about central and local fiscal relations, and active cooperation from millions of local officials to implement.
One hope for China’s reformers is that advances in technology will do the job for them. Innovations like WeChat (an Internet messaging system), Leftover Treasure (an Internet money-market fund) and Didi Dache (an online taxi-hailing system) are changing the way Chinese people communicate, invest and travel without the government having to fight bruising battles with vested interests in those sectors.
Innovation, entrepreneurship and development of the “sharing economy” feature prominently in the outline of plans for the next five years. Whether that is sufficient to tip the battle in the direction of the reformers and sustain China’s growth at the 6.5 percent target remains to be seen.
– Contact us at [email protected]