The Path to Reaching Economic Growth Targets

In 2013 China’s new leadership steered the country onto a fast and stable development track in accordance with the people’s expectations. Aiming for an economic growth rate of about 7.5 percent for 2014 is both achievable and necessary. To reach this goal against the backdrop of a sluggish global economy, China needs to rely on domestic demand, which in large part arises through investment. To spur investment by local governments, the issue of financing platforms should be fundamentally addressed. From a long-term perspective, local governments should be allowed to issue bonds. Further, to promote investment in the field of industrial modernization, more financial support and better governmental coordination are needed. 

A manufacturer participating in the China International Machinery Industry Exhibition, which opened on March 13, 2014 at the Ningbo International Conference & Exhibition Center, demonstrates one of its products.

Good Performance Achieved with Difficulty

Premier Li Keqiang stated in the 2014 government work report that last year China’s gross domestic product (GDP) increased by 7.7 percent year-on-year. The consumer price index (CPI), meanwhile, rose 2.6 percent, registered urban unemployment stood at 4.1 percent, and 13.1 million urban jobs were created.  

This good performance came with difficulty, especially considering adverse factors. Over the past two years, the world economy has remained inert. Europe, as China’s largest export market, saw negative economic growth of 0.6 percent in 2012 and of 0.4 percent in 2013. The U.S. economy, the second largest market for Chinese exports, grew by 2.7 percent in 2012 and 1.8 percent in 2013. Japan, as the world’s third largest economy, grew by 1.9 percent in 2012, and 1.7 percent in 2013.

Exports are one of the top three driving forces for economic growth. However, with the world’s three major markets in a slump, exports and economic growth have been dampened in emerging economies. Last year Brazil and India grew by only 2.2 percent and 4.9 percent respectively, well below China’s growth.

Under such external pressure, China’s economic growth slowed to 7.7 percent in the first quarter of 2013, and dipped further to 7.5 percent in the second quarter, reigniting fears that a crisis was coming China’s way. The Chinese government took measures to rein in incremental production capacity while tapping the potential of existing capacity, and advanced economic restructing and reforms, driving economic growth back up to 7.8 percent in the third quarter and 7.7 percent in the fourth quarter. In this way, China maintained a respectable 7.7 percent growth for the whole year. As Premier Li stated in his work report, “In the last year, we met more difficulties but delivered better performance than expected.”

Domestic Demand

Looking at the prospects of China’s economic development in 2014, a multitude of challenges and difficulties are still in view. Although developed countries have shown signs of recovery, the foundation of this recovery is still fragile.

The World Bank expects the U.S. economy to rise by 2.8 percent this year, from 1.8 percent in 2013. This may appear encouraging, but in the past, after every financial crisis U.S. economic growth always rebounded robustly, often up to seven or eight percent. However, five years after the outbreak of the last financial crisis, the U.S. still has not shown signs of a rebound. Statistically, the U.S. unemployment rate has dropped to 6.7 percent, on a par with that of 2008. Importantly, the U.S. unemployment statistics ignore the number of unemployed people who have not actively sought employment for at least one month. This part of the population is regarded as having quit the labor market and are therefore not counted as “unemployed.” The statistical indicator that would more accurately reflect the country’s employment situation should be the labor participation rate of the working population of working age. If this factor were taken into account, the U.S. unemployment rate would exceed 10 percent.

The employment situation in Europe is even more grim. Unemployment in countries such as Greece and Spain has soared to 26 percent, with that for college graduates above 50 percent.

As for Japan, World Bank predictions forecast a downturn, with a growth of only 1.4 percent.  

China’s exports will continue to face immense sustained pressure in 2014. China’s export growth target was 8 percent in 2013, and 7.5 percent this year. Since its reform and opening-up, China’s exports have enjoyed an annual average growth of over 16 percent. Even if the 2014 export target is reached, it would only reach half of past average levels. Moreover, the growth target will only be met if tremendous efforts are made. Therefore, given the gloomy world economic situation, to achieve its 2014 target of 7.5 percent growth in GDP, China can only rely on domestic demand.