Every year, Beijing’s growth target is 8 per cent. The figure is as intriguing as it is convenient
Drew Thompson 16 March 2009
There are few constants during a time of economic uncertainty. But for those seeking solace in the midst of economic torment, look to the just-concluded meetings of the National People’s Congress in Beijing. Premier Wen Jiabao launched the sessions by delivering China’s version of the State of the Union address. Although the world, rattled by the global financial crisis today, looks vastly different than it did a year ago, he repeated with all the certainty of a pastor pronouncing “amen” that in 2009, yet again, Beijing would be setting a target of 8 per cent annual growth.
In recent years, this official target has drastically underestimated China’s actual growth. This time, many observers think it may be an overestimate. In both cases, the question remains: why is 8 per cent considered the magic figure?
Most China watchers will tell you, as though it were a certain fact, that 8 per cent growth is the approximate level needed to keep employment up - and the potential for “social unrest” down. It is typically assumed that 8 per cent is what is required to create enough jobs to absorb laid-off workers from failing state-owned enterprises and new graduates entering the labour pool. Too much more than 8 per cent, and you risk runaway inflation; much less, and unemployed workers will march in the streets and chaos will ensue. So how did 8 per cent become sacrosanct?
In all questions of faith, look first to one’s creator. In this case, that means Deng Xiaoping. At the 12th Party Congress, in September 1982, Deng determined that the national economic goal would be to quadruple the annual industrial and agricultural output of the entire country by the end of the century. Prior to the big meeting, Deng asked then general secretary Hu Yaobang how the country could quadruple its economy, from 710 billion yuan in 1980 to 2.8 trillion yuan in 2000, and Hu responded that 8 per cent annual growth would do the trick. That’s it.
The end of the century has come and gone, but the target has remained the same. Subsequent five-year plans have all set an annual growth target of between 7.5 and 8.5 per cent. This national objective has since become the obsession of officials at each level of the vast bureaucracy.
The truth is, it’s hard to tell exactly what China’s annual growth rate actually is. Because officials receive promotions based on how well they tend their economic gardens, there’s a strong incentive for mandarins at all levels to fudge the figures they report up the bureaucratic food chain. Invariably, almost every province reports growth exceeding the national average - which, of course, is impossible.
This presents difficulties for senior leaders in Beijing, who have to somehow adjust for such bureaucratic “inflation”. At least by now they are well aware of the phenomena. In the late 1950s, local officials showed similar zeal (and political acumen) when they inflated grain outputs in their reports to higher authorities, resulting in mass starvation when the central government failed to recognise the trend of inflationary reporting, known as “the winds of exaggeration”.
China is not a federal system. Although Beijing does occasionally dispatch secret investigators, the central government remains almost entirely dependent on provincial reporting chains.
Although Beijing’s obsession with employment is well known, its fear of inflation is an equally important motivator. Officials feel they must walk a fine line between creating jobs and keeping a lid on prices. Chinese historians point out that the Red Army alone did not defeat the Nationalists in 1948 - hyperinflation, which resulted in skyrocketing food prices, was an equally essential factor in undermining the Kuomintang. Later, the Communist Party saw its own authority tremble in 1988, when inflation reached 20 per cent, resulting in panic-buying and contributing to discontent that culminated in the Tiananmen Square protests of 1989.
Today, as Beijing grapples with a global financial crisis, it might all come down to pork - not wasteful government spending, but the other white meat. On the Chinese mainland, fuel and grain prices are tightly controlled. So food prices, and pork in particular, will play a significant role in the mainland’s economic recovery. Food contributes to at least a third of the mainland’s consumer price index (CPI) basket. As a measure of inflation, the CPI is closely watched as a barometer for potential unrest. Because lower-income families have to devote a larger portion of their income to food, the government is particularly concerned about the impact of rising food prices on citizens who have not benefited from economic development - and are potentially dissatisfied with Beijing.
Recognising this, the National Development and Reform Commission, China’s economic planning ministry, placed price controls on a number of food staples and building materials last year, trying to rein in rising prices, including a pork price increase of almost 60 per cent over the previous year.
When I see Mr. Wen on Chinese TV, I am often filled with sympathy for him. Taking on the challenge of creating 9 million jobs a year amid global financial turmoil and the anxiety caused by falling exports, the premier’s annual work report at the NPC is reassuring in its predictability and sense of certainty. It’s no secret that 8 per cent gross domestic product growth will be a difficult target this year.
But, Mr. Wen is seeking to reassure his troops, preaching a message that resonates with his flock and silently invoking the convictions of Deng that China’s economic growth is an article of faith.
Drew Thompson is director of China studies and Starr senior fellow at the Nixon Centre in Washington
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Magic number
Every year, Beijing’s growth target is 8 per cent. The figure is as intriguing as it is convenient
Drew Thompson
16 March 2009
There are few constants during a time of economic uncertainty. But for those seeking solace in the midst of economic torment, look to the just-concluded meetings of the National People’s Congress in Beijing. Premier Wen Jiabao launched the sessions by delivering China’s version of the State of the Union address. Although the world, rattled by the global financial crisis today, looks vastly different than it did a year ago, he repeated with all the certainty of a pastor pronouncing “amen” that in 2009, yet again, Beijing would be setting a target of 8 per cent annual growth.
In recent years, this official target has drastically underestimated China’s actual growth. This time, many observers think it may be an overestimate. In both cases, the question remains: why is 8 per cent considered the magic figure?
Most China watchers will tell you, as though it were a certain fact, that 8 per cent growth is the approximate level needed to keep employment up - and the potential for “social unrest” down. It is typically assumed that 8 per cent is what is required to create enough jobs to absorb laid-off workers from failing state-owned enterprises and new graduates entering the labour pool. Too much more than 8 per cent, and you risk runaway inflation; much less, and unemployed workers will march in the streets and chaos will ensue. So how did 8 per cent become sacrosanct?
In all questions of faith, look first to one’s creator. In this case, that means Deng Xiaoping. At the 12th Party Congress, in September 1982, Deng determined that the national economic goal would be to quadruple the annual industrial and agricultural output of the entire country by the end of the century. Prior to the big meeting, Deng asked then general secretary Hu Yaobang how the country could quadruple its economy, from 710 billion yuan in 1980 to 2.8 trillion yuan in 2000, and Hu responded that 8 per cent annual growth would do the trick. That’s it.
The end of the century has come and gone, but the target has remained the same. Subsequent five-year plans have all set an annual growth target of between 7.5 and 8.5 per cent. This national objective has since become the obsession of officials at each level of the vast bureaucracy.
The truth is, it’s hard to tell exactly what China’s annual growth rate actually is. Because officials receive promotions based on how well they tend their economic gardens, there’s a strong incentive for mandarins at all levels to fudge the figures they report up the bureaucratic food chain. Invariably, almost every province reports growth exceeding the national average - which, of course, is impossible.
This presents difficulties for senior leaders in Beijing, who have to somehow adjust for such bureaucratic “inflation”. At least by now they are well aware of the phenomena. In the late 1950s, local officials showed similar zeal (and political acumen) when they inflated grain outputs in their reports to higher authorities, resulting in mass starvation when the central government failed to recognise the trend of inflationary reporting, known as “the winds of exaggeration”.
China is not a federal system. Although Beijing does occasionally dispatch secret investigators, the central government remains almost entirely dependent on provincial reporting chains.
Although Beijing’s obsession with employment is well known, its fear of inflation is an equally important motivator. Officials feel they must walk a fine line between creating jobs and keeping a lid on prices. Chinese historians point out that the Red Army alone did not defeat the Nationalists in 1948 - hyperinflation, which resulted in skyrocketing food prices, was an equally essential factor in undermining the Kuomintang. Later, the Communist Party saw its own authority tremble in 1988, when inflation reached 20 per cent, resulting in panic-buying and contributing to discontent that culminated in the Tiananmen Square protests of 1989.
Today, as Beijing grapples with a global financial crisis, it might all come down to pork - not wasteful government spending, but the other white meat. On the Chinese mainland, fuel and grain prices are tightly controlled. So food prices, and pork in particular, will play a significant role in the mainland’s economic recovery. Food contributes to at least a third of the mainland’s consumer price index (CPI) basket. As a measure of inflation, the CPI is closely watched as a barometer for potential unrest. Because lower-income families have to devote a larger portion of their income to food, the government is particularly concerned about the impact of rising food prices on citizens who have not benefited from economic development - and are potentially dissatisfied with Beijing.
Recognising this, the National Development and Reform Commission, China’s economic planning ministry, placed price controls on a number of food staples and building materials last year, trying to rein in rising prices, including a pork price increase of almost 60 per cent over the previous year.
When I see Mr. Wen on Chinese TV, I am often filled with sympathy for him. Taking on the challenge of creating 9 million jobs a year amid global financial turmoil and the anxiety caused by falling exports, the premier’s annual work report at the NPC is reassuring in its predictability and sense of certainty. It’s no secret that 8 per cent gross domestic product growth will be a difficult target this year.
But, Mr. Wen is seeking to reassure his troops, preaching a message that resonates with his flock and silently invoking the convictions of Deng that China’s economic growth is an article of faith.
Drew Thompson is director of China studies and Starr senior fellow at the Nixon Centre in Washington
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