China Lowers Growth Target to About 7%
This year’s target to signal how ready leaders are to settle for ‘new normal’
BEIJING—China lowered its economic growth forecast to about 7% for 2015 at the opening of the country’s biggest political event of the year, ushering in what leaders have dubbed a “new normal” of slower growth in the world’s second-largest economy.
The move signaled Beijing won’t take dramatic action to raise the growth rate above last year’s level, which at 7.4% was its lowest level in nearly a quarter-century. At the same time, its leaders signaled concerns that an even sharper drop in growth risks higher unemployment and social unrest.
In remarks before the country’s lawmakers on Thursday, Premier Li Keqiang listed the challenges to the Chinese economy, including sluggish investment growth, overcapacity, deflationary pressure and increasing public demand for better social services.
The new target “takes into consideration what is needed and what is possible,” Mr. Li said at the opening of the National People’s Congress, China’s annual parliament. Of the challenges, he said, “We must face these problems head on.”
China’s National People’s Congress Begins
Chinese Premier Li Keqiang’s speech on the economy opened the National People’s Congress, China’s annual legislative session Thursday. China lowered its economic growth forecast to about 7%.
Chinese President Xi Jinping was served by an attendant during the opening of the NPC.
The third session of China's 12th National People's Congress opened at the Great Hall of the People in Beijing Thursday, March 5.
Military personnel watched over Tiananmen Square from a rooftop across from the Great Hall of the People, as the sun rose before the opening session of the National People's Congress in Beijing, Thursday.
A military band member checked his watch before rehearsals for the opening session of the NPC at the Great Hall of the People Thursday.
Ethnic minority delegates from Guizhou Province posed for pictures ahead of the opening of the NPC.
Military delegates arrived for the opening of the NPC at Tiananmen Square.
Attendants waited to serve water to delegates.
A military band conductor practiced at the Great Hall of the People.
Chinese President Xi Jinping was served by an attendant during the opening of the NPC.
The third session of China's 12th National People's Congress opened at the Great Hall of the People in Beijing Thursday, March 5.
Mr. Li on Thursday was more sober in tone than previous speeches. Several times he referred to the necessity of not letting growth slide further. He called for “a medium-high-level growth rate,” and suggested that falling below that would stall the drive to raise incomes. That could leave China in the “middle-income trap”—unable to create enough jobs and fund the transition to an economy driven by services, small business and innovative companies.
China’s targets illustrated the balance it is trying to strike as it encourages reform while trying to sustain growth. The government said it would increase deficit spending, lower targeted trade and fixed-asset investment growth, and increase money supply if needed. At the same time, it said it would loosen price controls on pharmaceuticals and energy and push to restructure its bloated state-owned enterprises.
Beijing’s new target follows a year in which the leadership struggled, and ultimately fell slightly short, of hitting its “about 7.5%” growth target for 2014. Targets remain far more important in China than in most other countries and are more directly tied to the leadership’s prestige and serve as a tool to guide the bureaucracy.
“They seem to be giving themselves an opportunity to go for reform acceleration by taking some of the growth pressure off the table,” said Conference Board economist Andrew Polk. “But we’ll see if they make good on this opportunity because in my mind they didn’t last year.”
In recent weeks, Beijing has unveiled increasingly dramatic moves to spur bank lending in a bid to rekindle economic momentum. But such moves could set back its efforts to shift away from excessive reliance on exports, a bloated property market and government spending.
China’s leadership has for months been preparing its people for tougher times ahead. In China, significant changes often involve a slogan, and the leadership’s “new normal” mantra—designed to lower Chinese expectations at a time when people’s aspirations are rising—was reflected Thursday in the numbers.
The targets suggest business could face another challenging year from China, traditionally a source of strong sales growth. Over the past year retail sales growth has slowed and markets ranging from cars to consumer goods are showing signs of weakening.
Many businesses are already recalibrating. “Since we have affected by recent slowdown already, we will continue to keep a careful eye on the Chinese economy,” said a spokesman for Japan’s Komatsu Ltd.
Domestically, demand looked weaker. Even as it moves to ease monetary policy, many Chinese companies say they don’t want to borrow or expand given weak demand. Smaller companies seeking credit say banks aren’t receptive because of worries about bad loans.
Canon Inc., the Japanese maker of cameras and printers, has been feeling the impact from China’s austerity campaign, with weaker demand from government agencies and state-owned businesses, said Hideki Ozawa, the president of Canon China. Although purchasing power is rising among middle-class shoppers, he said, “it’s not strong enough to lift up the whole economy,” he said.
In his address Thursday, Mr. Li said China was committed to reform on a number of long-touted fronts to overcome structural “tigers in the road” that impede progress. Among those measures are greater use of cleaner fuel, an expansion of the value-added tax, tighter control over local government debt, further paring of red tape and the rollout of bank deposit insurance.
“As the force that has traditionally driven economic growth is weakening, it is imperative that we intensify structural reform,” Mr. Li said in a hall packed with some 3,000 delegates.
But the premier also warned that reform must be tempered with enough growth to further the nation’s development goals and stem social unrest. China retained its goal for new urban job creation of about 10 million compared with actual creation of over 13 million last year and capped unemployment at 4.5%.
In an era of downward revision, Mr. Li, the nation’s chief economic architect, also sought to instill hope in the future, pointing to the nation’s potential to emerge stronger if private sector momentum can be tapped, small business encouraged and more companies go global.
“When an abundance of market cells spring into life, they will form a mighty driving force for development, ensuring China’s economy remains resilient in spite of the downward pressure on it, and continues to be full of life and dynamism,” he said.
But economists said pledges to encourage entrepreneurship and market principles without a significant reduction in the clout of China’s often bloated and politically powerful state-owned companies won’t be enough to retool an economic model they say has run its course. Mr. Li pledged to “move more swiftly” to improve their performance of state companies and take systemic steps to implement mixed ownership and other reforms.
“They’re moving too slowly,” said Standard Life Investments economist Alexander Wolf. “They missed the golden period of higher growth when reforms would have been easier.”
Without significant progress on some of the most entrenched structural problems, growth will slow further, he added. “And if the model still hasn’t changed, that’s the real concern,” Mr. Wolf said.
China’s reforms matter on a global level. If China ends up favoring short-term growth over restructuring this year, this could give a boost to a world economy suffering from Europe’s malaise and an unsteady recovery in the U.S. But it could also raise questions about China’s long-term role as a global economic growth engine.