context: As the economy slows, pressure on officials to stimulate the economy grows. However, key officials are pushing back believing a return to massive stimulus would be counterproductive. Compounding the problem is that six percent growth in 2020 is needed to realise government's goal of doubling the economy between 2010-20.
Debate intensifies on whether the government should use stimulus to ensure GDP growth remains at or above six percent, or let it fall.
Liu Shijin 刘世锦 Chinese People’s Political Consultative Conference economic committee deputy director believes potential output between 2020-25 will fall 5-6 percent (considered median speed), attempts to increase output over potential output will have short term benefits but long term risks
- growth slowing because of
- peak in real estate, export, infrastructure demands
- ageing population
- shrinking technology gap
- environmental concerns
- to maintain new medium growth rate, officials must
- improve production flow between urban and rural areas
- dismantle monopolies
- create fair market for private firms
- form innovation centres to stimulate competition
- improve SME financing
- encourage green development
Wang Yiming 王一鸣 State Council Development Research Centre deputy director posits the slowing economy is natural and reform will be key to maintaining medium speed growth
- six percent growth is not a watershed number, slightly higher or lower growth OK
- focus on high-quality, over high-speed, growth important
- nevertheless growth rate important, too slow will lead to unemployment and other problems
- development is the foundation and key to solving economic problems
- government must
- ensure stable growth
- strengthen counter-cyclical adjustments
- continue supply-side reforms
Xu Gao 徐高 Bank of China International Securities chief economist argues maintaining 6 percent growth is crucial for market confidence
- given China's poor resource allocation, attempts to use long-term trends to estimate potential output will fall short
- if growth falls below 6 percent, market confidence will shatter with increasingly reduced private and company investment and reduced aggregate demand