China’s annual spectacle of government meetings this weekend produced a promise for the next year that was remarkably similar to what China has said for much of the past half decade: economic growth is what’s important.
Not worries over debt, or tired concerns about giving free markets more influence—reforms be damned.
Premier Li Keqiang, the country’s second in command, on Saturday opened two days of meetings by announcing the annual GDP growth target range for the next five years of 6.5% to 7% and calling to give “top priority to development.” It’s the first time the Communist Party has set a growth range since 1995, when China’s economy was half the size of France’s, perhaps to give itself more flexibility in a confusing economy where manufacturing towns in the country’s north are in recession while the coastal southern towns specializing in technology and consumer services post nearly double-digit GDP growth and skyrocketing home prices.
The target means plenty of loose fiscal and monetary spending over at least the next year.
The budget deficit will increase to 3% of GDP for 2016, up from 2.3% in 2015, the government said, as more funds are funneled into the type of infrastructure-based capital spending that China has gorged itself on since a massive stimulus project in 2009.
This weekend the the National Reform and Development Commission, the policy group that drafts budgets and five-year plans, said more than 300 big transportation projects would begin between now and 2018, including revamped airports, more high speed rail, and the expansion of regular transportation networks.
One economist called the looser policy ‘running to stay in place.’
Running to stay in place? China targets lower GDP growth at 6.5%-7%, faster expansion in money supply at 13% pic.twitter.com/rABvnJdBUp
— Tom Orlik (@TomOrlik) March 5, 2016
Economic growth is the cornerstone of such legitimacy as the Communist Party has in China, and one of its core promises was to double per capita income from 2010 to 2020—a goal it can’t reach without 6.5% GDP growth till then.
The government crafted a strong message of resiliency this weekend amid more Western investors questioning whether the country’s rising debt levels, around 280% of GDP, stagnant industrial industries, and high levels of capital flight could produce a short-term shock to the economy. It all sounded defensive.
The head of the NDRC, which crafts the five-year plans and is generally considered the country’s top economic planner, said there was not even a possibility of a hard landing for the economy.
“Predictions of a hard landing are destined to come to nothing,” National Development and Reform Commission head Xu Shaoshi said at a news conference in response to a question about George Soros’s predictions. “Rest assured, this possibility does not exist.”
And the possibility that China’s already unsustainable debt levels won’t feel the pressure of more stimulus and more high economic targets? Well, that might not exist either.