China’s GDP: China is taking turmoil in Libya and Egypt seriously. In an online “chat” over the weekend, premier Wen Jiabao announced that the country must be prepared to grow more slowly in order to grow more fairly. The GDP growth target will fall to 7 per cent, from 7.5 per cent. For an economy used to growing at 10 per cent, slower growth could bring new strains.
Talk of growth that is more “inclusive” and clean seems designed to quell whispers of protest. Pollution and income inequality cause tension. China’s rapid growth has rewarded owners of capital more than labour, and environmental costs have been disregarded in the name of development.
Yet reining in growth is easier said than done. Many in China believe that rapid GDP growth is necessary for stability. China's cities generate 10 million new urban workers every year, according to official data. China has created over 8 million jobs a year since 1990 — except when GDP growth fell below 9 per cent. High growth keeps companies running despite low profitability. Even during 2007’s boom when large industrial firms grew their output by 28 per cent, gross margins were just 7.4 per cent, official data shows. Rapid industrial development has helped absorb the results of overcapacity in cement, chemicals and new industries such as wind and polysilicon.
Lower growth could cause higher unemployment in another way, too: by punishing the vibrant private sector. Banks prefer to lend to large state-owned companies because they have implicit state backing. If Beijing asks banks to lend less, private firms may be frozen out first. Yet private companies tend to be more labour intensive. It may be academic. The 7 per cent figure is at most a floor, not a goal. China’s average GDP growth for 2005 to 2010 was 11.2 percent, even though the official target was 7.5 per cent. Authorities’ scramble to achieve 8 per cent of growth in 2008 suggested that could be the real minimum for social stability.
China would certainly benefit in the long term from slower, fairer growth. Yet the process of overhauling the current high growth model will be difficult. Steering a course between unemployment on one hand, and pollution and inequality on the other, will take more than a new GDP number.
