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China’s lower growth target is missed opportunity

Mar 06 , 2015

China’s new target for GDP growth is a missed opportunity. Premier Li Keqiang says economic output will expand by “about 7 percent” this year. Though the lack of precision is welcome, the People’s Republic would be better off without its big, reassuring objective.

For most of the last decade, China’s annual growth target was actually a threshold: even when GDP was expanding at double-digit rates, the goal never exceeded 8 percent. In recent years, however, the target has become a leading indicator of the ruling Communist party’s willingness to accept a slowdown. Last year, China missed its growth objective for the first time since the late 1980s – though only by a tenth of a percentage point.

Planners seem to acknowledge the flaws in trying to steer the world’s second-largest economy towards a precise annual target. That explains the why the crucial number is prefixed with “about”. The vagueness shows Chinese leaders would be willing to accept growth of less than 7 percent this year, though it’s not clear how much of a shortfall they would tolerate.

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