China's President Xi Jinping said last Monday that the days of "ultra-high speed" growth in China are over; high-speed growth is neither sustainable nor desirable. So, what is the target growth rate for Beijing? According to Prime Minister Li Keqiang, China may have to accept annual growth rates below 7% for the rest of the decade in order to fix the economic problems and contain corruption. Xi said at the Boao Forum for Asia's [BFA] annual conference:
I don't think we will be able to sustain an ultra-high speed of economic growth, and it is not what we want either.
China has recorded annual average growth of 9.9 percent since the country began opening up its economy, a level that was "rarely seen in the history of world economic development". Xi said it is "still it is possible for us to sustain a relatively high speed of economic growth," without quantifying what a"relatively high speed" growth is.
Yet, the answer came from what Prime Minister Li Keqiang said one month ago. Li was quoted by Ming Pao of Hong Kong as saying to a group of the country's top political advisors on March 4 that, according to his calculation, China can still become a "Xiao-Kang Society" by 2020 even if the annual GDP growth is as low as 6.8% in the next few years.
In order to understand Li's calculation, we must know what "Xiao-Kang" means and its relation with China's economic growth rates until 2020.
Quadruple GDP Every 20 Years
"Xiao-Kang" traditionally refers to a family that is comfortably off, implying the family is middle-income. It was Deng Xiaoping, China's chief architect of economic reform, who linked China's economic growth with "Xiao-Kang". Deng set a goal of quadruple China's GDP between 1980 and 2000 in order to become a "Xiao-Kang Society". His successors followed suit and set the goal of quadruple the country's GDP between 2000 and 2020. As the second part of this growth target, Beijing set the goal of doubling GDP between 2010 and 2020.
6.8% Annual Growth For 7 Years
Hence, Li's calculation is simple. As China's GDP growths of 2011 and 2012 were 9.2% and 7.8% respectively, together with 2013 target at 7.5%, the annual growth targets for the next 7 years can be as low as 6.8% and still can achieve the goal of doubling China's GDP between 2011 and 2020.
Of course, Li did not mean that he actually aimed at such low growth rate for the rest of the decade. In fact, a well-known economist John Ross recently said China can maintain 8% growth for long time as long as Beijing keeps an elevated level of fixed-asset investments. What Li intended to do is to tell China's bureaucrats of all levels that the pursuit of high growth rates should not sacrifice other objectives like economic reforms and fighting against corruption.
The fact that Li mentioned the possibility of 7 years of extra-low growth rate of 6.8% indicates that the new administration will exercise unprecedented flexibility in setting year-by-year growth targets. If China experiences strong growth (approaching 8%) in the next few years, and if the Xi-Li administration is not satisfied with the progress of economic reform and anti-graft fight, it can further slow down China's growth to 6% or even lower.