OPINION

Implications of the 7% GDP Growth Target

This year's government work report confirmed speculations that the Chinese economy will slow down further in 2015 by lowering its whole-year growth target to around 7 percent, the lowest since 2000. What does the lowered growth target mean?

China is fine-tuning its growth target to make it fall within a reasonable range. The Chinese economy realized two-digital growth for five consecutive years, from 2003 to 2007. After the outburst of the global financial crisis, the speed fell to 9.6 percent in 2008 and further slid to 9.2 percent in 2009. By virtue of massive stimulus packages, the growth rate rebounded to 10.4 percent in 2010. But due to a lack of intrinsic momentum, the growth rate fell back to 9.3 percent in 2011, 7.7 percent in 2012 and 2013, and 7.4 percent in 2014. In fact, the slowdown is narrowing, indicating that the Chinese economy is in the right trajectory of falling into a reasonable growth range.

The lowered growth target also means China has plenty of room for economic restructuring. The fact that China's policymakers have lowered growth target continuously shows their guts and courage, and more importantly, shows their confidence in enormous wealth the nation has accumulated.

China's GDP reached $10.4 trillion in 2014, more than two times that of Japan, the world's third largest economy, and over five times that of India. Combined with the $3.84-trillion foreign exchange reserves, China has enormous advantages that other economies do not possess.

However, some doomsayers seem to have found new evidence in the figure, while others are concerned that the days of the double-digit growth rate are gone. This leads to another important question: To what extent does lowering GDP growth target necessarily mean the Chinese economy is in decline?

To answer that, one must realize the increase in GDP measured as a quantity is just as important as the growth rate--which measures it as a proportion.

China's GDP rose by $866.5 billion in 2014. This increase is comparable to China's entire GDP in 1996--less than 10 years ago--and Turkey's entire GDP in 2014. Turkey is the 17th largest economy in the world.

The 7.4-percent growth rate in 2014 is a number that may not seem particularly impressive for those who are focused on the apparent "speed" of the growth. However, 100 percent of $100 is still smaller than 7.4 percent of $100,000. A slower growth rate can represent a larger increase.

The Chinese economy expanded 14.2 percent in 2007, the fastest in two decades, and each percentage point was equal to $55.9 billion. In 2014, the economy grew by 7.4 percent, the slowest since 2000, but each percentage point was equal to $117.1 billion, more than double the increase in 2007.

The secret lies in China's skyrocketing economic aggregate. Its GDP surpassed the $1 trillion threshold in 2000 and has increased more than 10-fold since. This incredible increase means that each percentage point of growth is worth far more than it was 10 years ago.

The fact that 1 percentage point is worth so much more is evidenced by the country's buoyant job market.

The Central Government used to emphasize the importance of keeping economic growth above 8 percent because this was the threshold for sustaining a stable job market when economic aggregate was relatively low. In 2014, when economic growth slowed down, the job market was even more vibrant than ever before, with 13.22 million jobs being created in urban areas. Now, each 1-percentage-point GDP growth can create 1.8 million jobs, compared to somewhere around 1 million back in 2009.

With such a large GDP base and a stable job market at hand, China's top leadership feels at ease in the face of growth slowdown and is able to devote their attention to structural rebalancing, industrial upgrading and transformation of growth pattern by comprehensively bolstering reforms.

Unleashing reform dividend is the ultimate insurance of achieving growth at around 7 percent. It's commonly acknowledged that the "China miracle" has been realized over the past three decades because the dividends of reform have been fully tapped. If China wants to realize around 7 percent growth, it needs to attach greater significance to reform dividends to ensure endless growth momentum.

This is an edited excerpt of an article published in Outlook Weekly

NUMBERS 

1.28 bln yuan

Home appliance retailer Gome's net income in 2014, up 43.5 percent year on year

139 bln yuan

Profits from investment by China's Social Security Fund in 2014, with an 11.4-percent return on investment

7.9%

Growth of the net profit of the Agricultural Bank of China in 2014, totaling 179.46 billion yuan, over the previous year

32.21 bln yuan

Net profit of China Life Insurance Co. in 2014, a year-on-year rise of 30.1 percent

60.85 bln

The number of transactions by personal Internet banking users on the Chinese mainland in 2014, 22 percent more than the year earlier

23.6 tln yuan

China's total loans for agriculture in 2014, a year-on-year increase of 13 percent

8.1%

Growth of net profit of Bank of China in 2014, totaling 169.6 billion yuan, over the previous year

8.3%

Economic growth of the Suzhou Industrial Park, the largest cooperative project between China and Singapore, in 2014

Copyedited by Kieran Pringle

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