A further cut in GDP growth is being advised by economists for China’s 13th Five-Year Plan (2016-2020) to pave the way for more reforms and the switch to a consumption-driven economy.
They propose that the annual GDP growth target should be cut from about 7 per cent to 6.5 per cent.
Some economists even see short periods of 6 per cent growth as tolerable.
The ideas are being floated ahead of a top leaders’ meeting later this month.
Economists said there is no need to fear a further slowdown. Even as year-on-year GDP growth falls to 6.5 percent, based on a total of 63.65 trillion yuan ($10 trillion) last year, this still represents a rise of more than 4 trillion yuan.
In March, the government lowered the national GDP growth target of 7.5 per cent last year to “around 7 per cent” this year to allow the country to shed unwanted manufacturing capacity and for its transition from an export-led growth model to a consumption-driven one.
The economy grew by 7 per cent in the first two quarters of the year.
Slower GDP growth does not mean a weaker economy, said Yu Bin, an economist with the State Council Development Research Centre, a government think tank. It is only natural because the service industry is comprising an increasing share of the economy.
“The service industry generally has a lower demand for capital investment than manufacturing industry, and inevitably when translated in terms of GDP growth, you get a smaller figure,” Yu said.
According to the government, in the first half of this year, the service industry provided 49.5 per cent of China’s GDP, up from 48.1 per cent last year and 47.6 per cent in 2013.
In contrast, manufacturing industry’s share was 43.7 per cent in the first half, down from 47.1 per cent last year and 48 per cent in 2013.
The other source contributing to GDP is agriculture.
According to an economic outlook from the Chinese Academy of Social Sciences, in the five years from 2016 the nation’s potential growth rate could range between 6 and 6.5 per cent a year.
But Li Yang, a leading economist at the academy, said a lower growth target should have a “bottom line” as well, to avoid social turbulence, financial crises, or a major contraction in the jobs market.
Some economists suggest that the “bottom line” should be 6 per cent, while others prefer a higher level.
Zhang Xiaoqiang, vice-chairman of the China Center for International Economic Exchanges, said China will have to maintain average annual GDP growth of at least 6.5 per cent to achieve its long-term promise to double its GDP in 2000 ($1.58 trillion) in 20 years.
Wang Tao, chief China economist at UBS AG, said that when growth is driven less by manufacturing industry, China’s demand for energy and resources will flatten. “This will help to protect the environment and curb pollution by reducing the economy’s energy intensity,” Wang said.