China’s leaders are poised to lower their growth target for the next five years, as they wrestle with challenges from rising debt to excess industrial capacity and bloated state enterprises.
More than two-thirds of 16 economists surveyed by Bloomberg News expect the growth target to be set at an annual average pace of 6.5 percent, or less, for 2016 to 2020, down from 7 percent the previous five years. A quarter of the economists said growth will slip below 4 percent year-on-year at some point during the next five years—perhaps, not a hard landing, but a hard bump for an economy that has averaged about 10-percent growth over the past three decades.
The 13th five-year plan is poised to be the first since Deng Xiaoping opened the nation to the outside world in the late 1970s to confront an era of sub-7-percent annual growth. The deliberations of the plan will be announced after the October gathering in Beijing, known as a plenum. It will then be formally approved by lawmakers at an annual parliamentary session in March.
At stake for President Xi Jinping and Premier Li Keqiang is whether China can shift from a middle-income to high-income nation, a feat Nobel laureate Michael Spence says has been realized by only five economies—Japan, South Korea, Taiwan, Hong Kong and Singapore—while maintaining relatively high-growth rates. Crafting of the five-year plan coincides with heightened anxiety over China’s economic outlook, following a stock-market slump and surprise yuan devaluation in August that roiled global markets.
Success, stagnation
“This five-year plan and its outcomes will define whether the leadership of Xi and Li will be associated with economic success or stagnation,” said James Laurenceson, deputy director of the Australia-China Relations Institute at the University of Technology in Sydney. “Themes, such as promoting domestic consumption and industrial upgrading, were included in the previous five-year plans, but now they’re imperatives, not worthy aspirations.”
Growth this year is on pace for the slowest expansion in a quarter of a century, as exports falter and investment-spending growth slows. The third-quarter expansion slipped to 6.8 percent from a year earlier, according to economists surveyed by Bloomberg News ahead of data due on Monday.
A boom in the equity markets added an estimated 0.5 percentage point to growth in the first half, according to Bloomberg Intelligence economists. That has now “turned to bust,” suggesting the financial sector’s contribution to GDP in the third quarter will be smaller, Tom Orlik and Fielding Chen wrote in a note.
Xi and Li face constraints, including an aging population and shrinking work force, vested interests opposed to market-driven change and anemic demand from abroad for the nation’s exports. Success will require a shift to more innovative, higher-valued industries requiring greater creativity, allowing state enterprises to fail, and building a financial system that directs capital more to vibrant private companies than deadbeat state ones.