China was hardly lacking in policy pronouncements in the final months of 2013. From the 60-point reform programme issued by the Central Committee’s Third Plenum in early November to the six core tasks endorsed by the Central Economic Work Conference a month later, China’s leaders proposed a raft of new measures to address the daunting challenges that their country faces in the years ahead.
But, seen in their entirety, the risk of incoherence has become evident. The Third Plenum initiatives, for example, have a strategic focus: promoting the economy’s long-awaited pro-consumption structural rebalancing. While the Work Conference’s core tasks embody the spirit of these reforms, they also reflect a tactical focus: “keeping growth steady.” Given the likely tradeoffs between strategy and tactics—that is, between long-term reforms and short-term growth imperatives—can Chinese policymakers really accomplish all of their objectives?
Of course, such tradeoffs have long been evident in most economies—developed and developing alike. What has separated China from the pack has been its strong inclination to place greater emphasis on strategic objectives in charting its economic-development path.
Even so, new tensions between the Third Plenum’s policies and those of the latest Work Conference have raised the question of tradeoffs once again. The consumer- and services-led rebalancing initially proposed in the 12th Five-Year Plan and endorsed by the recently concluded Third Plenum implies slower GDP growth than the 10% average annual rate recorded from 1980 to 2010.
Yet, slower growth need not be a bad thing. Employment in Chinese services is about 30% higher per unit of output than in the manufacturing and construction
sectors, which means that an increasingly services-led China can accomplish its critical labour-absorption objectives—namely, rapid job creation and poverty reduction—with 7-8% annual growth.
For China, rebalancing and slower growth go hand in hand—and yield the additional benefits of less intensive resource demand, a more subdued rise in energy consumption, and related progress in addressing environmental pollution and income inequality. But the recent Work Conference failed to consider China’s growth slowdown in this strategic context, placing considerable weight instead on the macro-stabilisation imperatives of “proactive fiscal and prudent monetary policies.”
Since the Work Conference was concluded, investors have been debating the 2014 growth target. Will the 7.5% objective set for 2013 be maintained next year, as a recent leak from senior Chinese officials seems to indicate, or do the recent pronouncements indicate further deceleration towards 7%?
The answer will be revealed at the National People’s Congress