New York – One of China's most-watched pieces of economic data has been scrapped because of the coronavirus. Shed no tears. The decadeslong practice of setting goals for annual increases in gross domestic product had long passed its sell-by date.
In recent years, officials had constructed squishy language around the target, suggesting they would rather be done with the circus. Premier Li Keqiang's address Friday finally eliminated it. "Our country will face some factors that are difficult to predict in its development due to the great uncertainty regarding the COVID-19 pandemic and the world economic and trade environment,” according to the text of his speech to the National People's Congress, the rubber-stamp parliament.
The pandemic, set to induce the biggest global slump in almost a century, presented an opportunity Beijing was probably eager to grasp. In recent years, it has sought growth in the vicinity of 6 percent. Putting forward another target like this, given the calamitous fall in social and commercial activity, would have looked ridiculous. Setting one that’s too low, meanwhile, would only undermine confidence in the leadership’s ability to engineer any decent revival.
Friday’s move not only acknowledges the economic blow from efforts to contain the virus, but also could prevent a few mistakes during the recovery. Notably, it alleviates some of the pressure for a rapid rebound. China wants to crank up growth after a first-quarter dive, but doesn't want to go on a stimulus binge so great that it builds up problems for the future. That is what happened in the aftermath of the Great Recession, when a massive fiscal burst burdened state-owned companies with huge debts.
China's economy was slowing long before the coronavirus outbreak. Growth eased to 6.1 percent last year from 14.2 percent in 2007. Much of that cooling was welcome, given officials were trying to reorient the nature of this expansion, from one led by exports and investment to one driven by consumption and technology. As long as there was a target, local bureaucrats felt obliged to hit or even exceed it; careers in the ruling Communist Party rose and fell on this.
In recent years, Beijing started hedging its language. Officials opted for a range of 6 percent to 6.5 percent in 2019, which gave policy makers room to maneuver. The prior year, the goal was set at "about” 6.5 percent. In this context, the pandemic has accelerated a change that was probably already coming. GDP will probably increase 2 percent this year, according to Bloomberg Economics.
Abandoning this policy ritual may have another benefit. Beijing’s foes, and even some fans, were wary of its official statistics. China had a knack for hitting targets once they were set. Comments attributed to Li by American officials, published by WikiLeaks in 2010, only cemented that view. Broad measures of growth were "man-made'' and "for reference only,” Li was said to have remarked when he was a provincial party chief.
Regardless of padding, most observers had a general sense about the direction of growth. This year, there’s no doubt dire things are happening. The economy contracted 6.8 percent in the first quarter from a year earlier, the worst performance since at least 1992. By abandoning the fantasy of a high target, or any at all, Beijing is salvaging something from the wreckage.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.
Click to enlarge
