Since the transition to communism, China has set top-down goals for its economy. Mao Zedong wanted to double steel production in a year – and in trying to achieve this, he ruined the country. During his rule, China often failed to achieve the goals imposed from above. After his death, they crossed them easily more than once. Current policymakers are trying to ensure that neither of these situations occurs – their economic growth targets include both lower and upper limits of ambition. And that is a mistake. They should definitely aim higher.
They announced their latest goal on March 5 during the National People's Congress, a meeting of China's parliament that serves solely as the approval body. The government has set an economic growth target for 2026 of 4.5-5%.– so lower and less rigorous than last year. Moreover, this is the lowest assumed level of GDP growth since 1991.
This lowered target has sparked mixed reactions from experts.
Some economists believe it is still too high. China's labor force is shrinking, the real estate market is in crisis and consumers are cautious. Exports – as in the previous year – may not come to the rescue. Although the threats posed by the trade war with the US have diminished, some markets in the Middle East region are facing a real war – triggered by the US and Israel attack on Iran [Chiny współpracują z niektórymi krajami tego regionu, w tym z samym Iranem].
Others say the goal is appropriate. Almost all delegates of the National People's Congress will vote in favor of it. Even among professional forecasters, there is a consensus that China will record economic growth of 4.6 percent this year. – if only because decision-makers will strive to achieve this result.
The third group believes that the whole project is a fantasy. They claim that China's economic growth figures have little to do with reality. And that it doesn't matter whether the made-up number serves the made-up purpose. All three groups are wrong.
A sign of a deeper problem
China's new economic growth target is too low. Looking at the country's recent results, we can expect what Beijing will do – it will limit its efforts to revive demand, perpetuating the economy's biggest problems.
The prices in China are proof of this. According to some indicators, they have been declining for three years. This persistent deflation is itself a cause for concern – increases the debt burden, limits the scope for monetary easing and dampens price signals, given the reluctance even in China to cut wages in monetary terms. It is also a sign of a deeper problem. It suggests that production is below what the country could produce if its capital and labor were fully utilized. To close this gap in 2026, the economy would have to grow by more than 5.3%. Growth of 4.5%. not enough.
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You may agree with the diagnosis but be irritated by the recommendations. Some economists may oppose targets on principle, dismissing them as a relic of central planning. That's understandable. China would be better off adopting something similar to the inflation targets that other economies follow. However, even in these countries, central banks assess how fast the economy can grow to keep inflation at an appropriate level. They also have a goal of economic growth, although it is not public.
Another concern is that a higher target will encourage inefficient investment. However, there are other ways to accelerate economic growth. More generous social spending and credible fiscal support for the housing market would give anxious households the confidence and means to spend more freely.
The alternative is slow economic growth, which is outrageously wasteful. Over 16 percent young people living in Chinese cities – representatives of the best educated generation in the country – are unemployed. Other workers languish in the provinces. An aging society cannot afford to treat the skills of younger generations so lavishly.
It is easy to understand China's reluctance to take the actions necessary to stop deflation. The previous group of leaders overreacted to the global financial crisis in 2008, introducing a stimulus package that weakened financial discipline and pushed inflation well above the government's threshold. Then the state did too much. Now he does too little. China's annual goals, five-year plans and centenary goals are designed to keep policymakers looking to the future. However, their instincts are dangerously rooted in the past.
I’m Ashley Davis as an editor, I’m committed to upholding the highest standards of integrity and accuracy in every piece we publish. My work is driven by curiosity, a passion for truth, and a belief that journalism plays a crucial role in shaping public discourse. I strive to tell stories that not only inform but also inspire action and conversation.
