MNI INTERVIEW: China Should Target Stable Growth – Advisor

China should aim for a recovery that is healthy and stable rather than steep, avoid large stimulus while pursuing quality growth and prioritise raising incomes for a consumption-driven economy, a top government advisor said in an interview with MNI.

"I am not in favor of a V-shape rebound - economic growth should avoid big ups and downs," said Yao Jingyuan, a counsellor to the State Council and former chief economist of the National Bureau of Statistics. Special policies to counter the pandemic should be phased out gradually, allowing market forces to again become the decisive force, said Yao.

While falling government revenues have caught attention, Yao made a case for increasing citizens' share of total output, and proposed more targeted fiscal spending as an offset. "We should make wealth distribution fairer," Yao said, adding that government investments should be focused on improving social welfare, such as education and housing, leaving commercial projects to companies.

Longer term, if China can double its middle class to 800 million by 2035 from the current 400 million, its economy would be significantly strengthened, Yao said.

GDP

China's GDP will likely grow 5% in the last quarter, taking whole-year growth to around 2%, Yao said.

His emphasis on quality growth and a more domestically-driven economy is in line with the 14th Five-Year Plan unveiled at the end of October, which didn't provide hard growth targets for the 2021-2025 period. A clearer view of policies and targets is likely at the National People's Congress due in March.

While some quantitative targets are necessary, it might be better to set relatively lower GDP rates in order to avoid encouraging growth-minded local officials to promote excessive investment, he said. Growth could be targeted at less than 6% a year over the next five years, and a ceiling on unemployment could also be set.

Nevertheless, investment will continue to play a key role when consumption drops, as happened during this year's pandemic, according to Yao.

China's investment and net exports were the first measures to turn positive in the first nine months of this year, while consumer spending continued to lag.

Referring to the technological ambitions in the five-year blueprint and the shortcomings of the manufacturing-dependent economy, Yao said China should develop capabilities in areas such as Big Data and AI.

Yao, who served for years as the stats bureau's spokesman, downplayed current weakness in both consumer and producer prices. October inflation slid to 0.5% y/y, the lowest in more than a decade, while factory-gate prices also stayed flat from September.