On Monday, China’s Prime Minister, Wen Jiabao gave a speech on the opening day of the annual National People’s Congress in Beijing. The key headline in the Western media that seems to have stayed with us from that speech was Premier Wen revealing a 7.5% growth target for 2012. Watching the US business news channels overnight these last few days, it seems as if every anchor and commentator has repeated this number as though China’s growth slowing from 9.2% in 2011 to 7.5% in 2012 is fact.
It’s not.
Since 2005, the ‘target’ in Premier Wen’s speech has been 8% and the growth target in the 11th five-year plan (2006 – 2010) was 7.5%. Real GDP growth in that time averaged 11.2%!
In the 12th five-year plan (2011 – 2015) the growth target was lowered to 7% and so the lowering of the ‘target’ in Premier Wen’s speech to 7.5% for 2012 was very much aligned with the change in the target in the five-year plan. This aspect of his speech was widely expected by China-watchers, and it wasn’t ‘new news’.
At best, these figures reflect a floor for the Central government’s comfort level with China’s growth rate. Most analysts, this one included, are still expecting 2012 real GDP growth to come in in the mid-8’s, barring a collapse in global economic conditions.
The significance of the change in the growth target in the 12th five-year plan, which was announced nearly a year and a half ago, was that China’s economic planners recognise that growth will necessarily slow over time and that this is an acceptable outcome. If one is to take something away from the growth target mentioned in Premier Wen’s speech, it is that the Central government is still okay with the soft-landing that is playing out in the economy and economic stimulus is not imminent.
So please, I urge you, stop saying China is expecting growth in 2012 to slow to 7.5%. That is not the expectation.
