China economic slowdown: debate heats up on whether Beijing should shoot for 6 per cent growth in 2020

Orange Wang

A debate is heating up among influential economists in Beijing as to whether China should take steps to defend a 6 per cent growth rate next year, ahead of a key economic policy-setting meeting this month.

China’s growth rate dipped to exactly 6 per cent in the third quarter this year, the basement of the government’s 6.0 to 6.5 per cent growth target range for 2019 and the lowest rate in nearly 30 years.

Most analysts expect growth to fall below 6 per cent in the fourth quarter and slow further early next year, ahead of full year growth of below 6 per cent, barring a major rollback of tariffs in the trade war with the United States.

To ensure growth of at least 6 per cent next year would require more aggressive economic policy stimulus than the government has heretofore been willing to consider.

Premier Li Keqiang has continually ruled out the all-out stimulus China pursued a decade ago in response to the global financial crisis, due in part to avoid adding to already high debt levels.

But the debate, nonetheless, has intensified in recent weeks ahead of the annual Central Economic Work Conference, due to take place in the coming weeks, at which senior officials will set economic policy priorities for next year, including the growth target.

Those in favour of maintaining a target of at least 6 per cent warn that lower growth will aggravate existing domestic problems that are already being made worse by the trade war.

Yu Yongding, noted Chinese economist and former central bank adviser, argued that preventing a further decline in growth should be Beijing’s most urgent priority, because a further deceleration would lead businesses and consumers to expect worse still, therefore hitting investment and consumer spend.

“This sort of expectation is very dangerous. The reduction in overall demand will lead to a further fall of gross domestic product (GDP), forming a vicious [downward] spiral,” the 71-year-old Yu wrote in a column in Caijing Magazine on Monday.

“We can no longer let the economic growth rate break the 6 per cent threshold. We have slumped to 6 per cent from 12.2 per cent, we can [tolerate GDP growth to] fall below 10 to 9 per cent, below 9 to 8 per cent, below 8 to 7 per cent, now it is close to 6 per cent, it is time to brake,” he said.

We can no longer let the economic growth rate break the 6 per cent threshold. We have slumped to 6 per cent from 12.2 per cent, we can [tolerate GDP growth to] fall below 10 to 9 per cent, below 9 to 8 per cent, below 8 to 7 per cent, now it is close to 6 per cent, it is time to brake

Yu Yongding

Yu’s view was echoed by Yao Jingyuan, an adviser to the State Council, the country’s cabinet, who said last Wednesday that next year’s target should be about 6 per cent. He advised an increase in the budget deficit limit of 3 per cent of GDP to allow for more aggressive fiscal policy measures to combat the slowdown.

But he also said that sub-6 per cent growth could be acceptable, as long as employment growth and inflation were stable.

Meanwhile, a joint report released on Saturday by Renmin University of China and the China Chengxin Credit Ratings Group argued that it was not necessary for Beijing to maintain 6 per cent growth next year.

The report projected growth would slow to 5.9 per cent in 2020 from a predicted 6.1 per cent this year, and suggested the government target growth between 5.5 and 6 per cent next year, which would be sufficient to maintain stable employment nationwide.

However, a rising number of analysts are doubtful as to whether 6.0 per cent in 2020 is achievable. Economists at the Bank of America forecast 5.6 per cent growth in 2020 and 5.5 per cent in 2021.

Gao Shanwen, a leading Chinese economist and frequent critic of Beijing’s economic policies, said that growth could be as low as 4 per cent over the next decade, partly due to unsustainable investment and the accrued risks from excess stimulus over the years.

Yu, however, said that the factors affecting the Chinese economy in the longer term do not explain the current slowdown. He suggested the government immediately expand fiscal policy and loosen monetary policy to bolster growth, despite Premier Li repeatedly rejecting this idea.

“Economics is [about] making choices, picking the lesser of two evils. If deteriorating financial conditions and slowing economic growth are two evils, I would rather allow fiscal policy to cause a temporary deterioration in the fiscal condition to stabilise the economic growth,” he said.

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