Source: Financial Times
Slower Growth is Good for ChinaThat China’s third quarter growth rate of 9.1 per cent, just marginally below forecasts, would spark a sell-off in the markets says a lot about the gloomy state of the global economy. Analysts have not yet decided whether a rate below expectations is good or bad, given the concerns about inflation.
Some have focused on the minor changes in sector growth patterns; evidence that China is finally rebalancing, with consumption rising relatively faster than output; and signs that fixed investment is becoming more judicious, with a slowdown in property development. While the general sense is that macroeconomic policies do not need major adjustments, globalists tend to worry more about whether China will continue to be a strong source of demand given the weakness of the US and eurozone economies.
Ostensibly, Beijing’s goal is to manage a “soft landing”. But even at home, many have not fully accepted the premise of the current five-year plan that slower, but higher quality growth, averaging seven per cent, is better. Skeptics believe that this target is no more credible than the 7.5 per cent target (compared with the actual 11 per cent achieved) in the just-completed plan.
Many recognise that slower growth would be more environmentally sustainable. Yet some vested interests still feel that these are issues for richer, more developed countries.
Thus making a credible case that seven per cent growth is better than ten means challenging the traditional objectives that have preoccupied China’s leaders during the post-Mao reform era. Two targets have been sacrosanct – price stability and employment generation – with the understanding that rapid economic growth makes them more achievable.
But times have changed. Keeping prices stable was much simpler when the main concern was providing access to a range of basic consumer goods at affordable prices. Having become the world’s assembly plant for such items has solved that problem. Instead, the current bout of inflation stem from the demand of a rising middle class for a varied diet of modern goods and services that are more costly to provide. Part of this is driven by the search for housing in cities where real estate prices have surged with urbanisation and speculative pressures. Pushing the economy to grow too fast will make it only harder to maintain price stability in the future.
However, employment generation made considerable sense when the stock of surplus labour in the countryside and in bloated state enterprises had to be absorbed by a small, but expanding, private industrial sector. China had to grow out of its past distortions and inefficiencies. But its employment needs today are quite different from those a generation ago. Faced with a declining labor force due to a rapidly aging population, creating copious, but relatively low-skilled, jobs is no longer the priority. The focus now is on fewer, but higher value-added, positions.
On both scores, Beijing and the rest of the world need to be more relaxed about China’s declining growth rates, provided that the process is managed well – which, of course, is a big if.