MNI ANALYSIS: China Mulls GDP Targets as Quality Becomes Focus

--Government Will Do Away With Annual Growth Targets From 2020

--But Whether To Ditch Growth Targets for 2018 and 2019 Still Under Discussion

By William Bi

     BEIJING (MNI) - The Chinese government announced Thursday that it will do

away with annual GDP growth targets starting in three years, but leaving open

the possibility that the end of such targets could come sooner. 

     Policy-planners will "no longer mention targets like doubling the GDP" when

mapping out long-term goals, Yang Weimin, deputy head of the Central Finance

Leading Group, said in remarks interpreting Xi Jiping's report delivered last

week at the 19th Communist Party Congress, which concluded on Tuesday. The group

is the direction-setting body for China's economic policies, led by Xi himself. 

     Yang deemphasized the GDP targets while reading out his remarks on the

government's "two-step approach" for economic development in the decades beyond

2020. 

     That left unanswered how the government will manage the transition between

now and then. When stopped by reporters on his way out of the press room, Yang

said "next year and the year after are still under discussion."

     "Society's major contradiction has changed," Yang said while on podium,

echoing Xi's much-touted assertion that "the principle contradiction" was

unbalanced growth rather than lack of output. "The most acute issue is lack of

quality" in the economy, according to Yang. 

     Yang did identify "three big battles" that must be won by 2020, when China

can declare it has formally met the vague definition of being a "moderately

prosperous" society: preventing "major risks," surging debt and speculative

investment, reducing poverty and curbing pollution. 

     As many noted, the Congress's objective was bureaucratic reshuffling, and

those looking for any clarity on policies must wait until December at the

earliest, when the first Central Economic Work Conference under the new team

will be held, setting economic policies for next year. 

     Precedents suggest the government will be flexible when it comes to

changing goals and priorities. 

     During his first administration, President Xi abandoned plans to let the

market play a bigger role in economic reforms as originally set out in the last

congress, ramping up government investment when growth stalled and restricting

capital flows when financial stability was threatened. 

     Given recent data showing the economy grew by 6.9% in the first three

quarters of the year, it is certain growth will end the year well beyond the

government goal of 6.5%. This has emboldened officials' projections about the

economic outlook, with People's Bank of China Governor Zhou Xiaochuan saying

last week that growth would accelerate to 7% in the second half. 

     The rating agency Fitch said strong growth so far this year has been helped

by a rebound in exports that won't last into next year. And both the momentum

from property market investment and government infrastructure spending are

expected to fade. 

     That suggested the government may still resort to pro-growth policies to

prop up an annual expansion rate of 6.0% to 6.5% until GDP meets the goal in

2020: doubling from 2010. 

     So while regulators will increase their vigilance on shadow banking and

other financial risks, economic leverage will continue to rise and

state-owned-enterprise reform will proceed only slowly. 

     The 19th party congress may project a turning point in reform and

transformation, but a more likely scenario is that the status quo will be

maintained, and reform will be gradual, until the next decade. 

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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