Xi Jinping: forced to give up on a vaunted political goal

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In line with the guidelines released by Chinese Premier Li Keqiang before the commencement of Friday’s National People Congress in China, the government decided to abandon its quarter of a century practice of setting GDP targets for the year citing “factors that are difficult to predict”; most notably the coronavirus pandemic and uncertainties around trade.

Li and high ranking party members are stating the decision as a liberating one that enables China to focus on security and stability. Leaders have in recent years de-emphasized explicit growth targets anyway, increasingly regarding them as burdensome.

In March, Mr. Li called on officials to prioritize employment over raw GDP growth, underscoring the senior leadership’s concerns about social instability.

“As long as employment is stable this year, it’s not that big of a deal whether the economic growth rate is a bit higher or lower,” Mr. Li said.

Dropping the GDP target for the year, (long the lodestar of Chinese economic policy), is a humbling moment, forcing Mr. Xi to give up on one of the Chinese leadership’s most vaunted political goals: to double the economy’s size from a decade earlier ahead of next year’s centennial of the Chinese Communist Party’s founding.

Officials have already begun to lower expectations. He Lifeng, the head of China’s main economic-planning body, told reporters Friday that even meager GDP growth this year of 1% would expand overall GDP by 1.9 times from a decade earlier. Not quite double, but close enough.

“Beijing is taking a more realistic and humbler approach by omitting a growth target this year amid so many uncertainties,” said Betty Wang, an economist with ANZ Research.

These serve as a blunt reminder of the magnitude of the many risks that loom over China’s economy in the coming months.

While China claimed success in stamping out the initial outbreak of the coronavirus, which was first detected late last year in the central city of Wuhan, authorities have struggled to prevent continued outbreaks around the country and haven’t loosened tight restrictions on international travel.

Then there is the other great uncertainty: a tense and quickly deteriorating relationship with the U.S., the world’s largest economy, as the two sides fight over trade, technology and the origins of the coronavirus.

In the past week alone, President Trump has moved to tighten restrictions on doing business with Chinese telecommunications giant Huawei Technologies Ltd, and threatened to tear up the phase one trade deal with China.

With so many uncertainties, Chinese policy makers aren’t just struggling to forecast a growth target for the year.

They are also holding back on stimulus, raising the fiscal deficit target to 3.6% or more of GDP. A new high but falling short of the kind of forceful “all-in” stimulus that characterized their response to previous downturns.

To be sure, if the situation deteriorates further, policy makers may be forced to ramp up stimulus, said Larry Hu, an economist at Macquarie Group. As it stands, he said, China’s other economic targets this year to create more than nine million urban jobs and keep urban unemployment below about 6% are ambitious enough, given the myriad of uncertainties.

“Chinese authorities don’t have to defend the GDP growth target any more,” Mr. Hu said, “but they are still under pressure.”
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