How Chinese Growth Is Changing

What many international observers continue to miss is that the deceleration of growth in China goes hand in hand with rapidly-rising living standards.

In his annual work report, Chinese Premier Li Keqiang said on Monday that China aims to expand its economy by around 6.5 percent this year.

While some of the leading international media reported the new growth target factually, others portrayed it as a “slowdown” that could even undermine global growth prospects.

Much of the international media is missing the real story of Chinese growth.

Mistaking long-term trends with short-term fluctuations

Speaking at People’s Congress (NPC) on Monday, Premier Li Keqiang did say that China’s new growth target is 6.5 percent. At surface, that’s the same as the official target in 2017. Last year, the goal was kept unchanged, even though the economy grew 6.9 percent and exceeded the government’s official target. 

In a deeper view, the growth target is not the same as in 2017 because the landscape of Chinese growth is changing.

In the past, credit growth was almost twice as high as the growth rate. But now China is pressing ahead with a campaign to reduce risks in the financial system.

Premier Keqiang’s report left no doubt about the fact that the government’s attention is now firmly fixed on credit risks and higher-quality growth. That’s why China has also cut its budget deficit target for the first time since 2012.

Authorities will be more watchful of fiscal spending, even as they avoid excessive tightening – which many Western observers advocate in China, even though that would risk a sharper slowdown.

Like too many times before, much of international media mistakes secular, longer-term trends with cyclical, short-term fluctuations. Consequently, they misunderstand the deceleration of Chinese growth as a slowdown, stagnation, or even a hard landing. In reality, deceleration simply reflects the eclipse of the intensive phase of industrialization, which heralds a transition to post-industrial society.