MNI INTERVIEW2: China To Target High-Quality Growth Over GDP

The Chinese Government will prioritise “high-quality” development aimed at lowering carbon emissions and meeting social goals, such as improving schools and medical services, with economic growth no longer a primary objective, a senior policy advisor to the National Development and Reform Commission told MNI.

“The policy community views near 5% economic growth as acceptable for the transition period, but GDP is now an anticipative target, rather than an obligatory one, which should be achieved mainly by relying on market forces,” said Wu Sa, deputy director general at the Economics Institute at the Academy of Macroeconomic Research, an NDRC think tank with a focus on development issues.

The government’s 14th Five-Year Plan published in 2020 contains targets for reducing energy consumption and carbon-dioxide emissions per unit of GDP by 13.5% and 18.0%.

Wu said the government will firmly enforce high-quality development. “Energy consumption indicators were classified as obligatory indicators for the first time in the 11th Five-Year Plan, showing the importance of such indicators,” he said.

Wu also told MNI authorities will likely expand the Connect programme to boost foreign capital into the country's financial markets (see: MNI INTERVIEW: China's Connect Program To Expand Capital Flows).

LOCAL DEBT

Local governments this year will issue about CNY3.8 trillion of special bonds, following last year’s over CNY4 trillion, with analysts voicing concerns over the longer-term viability of China’s economic model.

However, Wu believes this inaccurate. “During the high-quality transition period, special bonds are issued according to high standards that are strictly enforced,” he added. Wu said local governments can manage their debt liabilities as the economy grows, but more must be done to revitalise the underlying assets.

Local governments held CNY36 trillion of on-the-book debt, according to official figures released in February.

“Term extensions help avoid financial crises but this does not pay off debt,” Wu argued. “The key going forward is how we enhance asset competitiveness and industrial capacity.” He added financial products, including securitisation and infrastructure REITs, will play an important role.

HOUSING & PRIVATE INVESTMENT

Despite local government support for the property sector, Wu said authorities will not allow speculation to drive the market again. “Going forward property developers can earn an appropriate profit margin provided they satisfy people’s housing requirements,” he noted.

Weak investment in the private sector has characterised China’s emergence from Covid this year, with private fixed-asset investment falling by 0.1% for the first five months, a fact which concerns Wu.