Laily UPN
Beijing, China – China’s economic policymakers are reportedly considering setting the gross domestic product (GDP) growth target for the upcoming year at approximately 6.5 percent, a figure that underscores the nation’s strategic pivot from an era of high-speed expansion to one prioritizing high-quality development. This projection, initially reported by Securities Daily and attributed to a managing partner with Ruihua Certified Public Accountants, signals a deliberate recalibration of economic priorities, aligning with the broader vision articulated during the 19th Communist Party of China (CPC) National Congress. The anticipated target reflects a concerted effort to foster sustainable growth, innovation, and environmental stewardship over sheer quantitative output.
The Paradigm Shift: From Speed to Quality
The transition from high-speed to high-quality growth represents a fundamental reorientation of China’s economic philosophy. For decades, China achieved unprecedented economic expansion, frequently posting double-digit GDP growth rates that lifted hundreds of millions out of poverty and established the nation as a global manufacturing powerhouse. However, this rapid development often came at a cost, including environmental degradation, widening income disparities, and an over-reliance on investment and exports. The concept of "high-quality growth" directly addresses these challenges, advocating for a development model that is more balanced, sustainable, and inclusive.
Zhang Lian, managing partner at Ruihua Certified Public Accountants, emphasized the dual significance of the upcoming year. He noted that 2018 would mark the first full year of implementing the spirit and directives of the 19th CPC National Congress, which concluded in October 2017. This landmark political event enshrined "Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era," placing innovation, coordinated, green, open, and shared development as core tenets. Furthermore, 2018 also commemorates the 40th anniversary of China’s reform and opening-up policy, a critical juncture for reflecting on past achievements and charting future directions. The confluence of these two anniversaries underscores the profound strategic importance of the economic decisions being made.
Key Drivers of the New Economic Strategy
The government’s commitment to "making progress while ensuring stability" (稳中求进, wěn zhōng qiú jìn) will remain the overarching principle for the next year. This approach dictates a cautious yet determined push for advancements in key areas, specifically quality, efficiency, and the cultivation of new growth engines. This means moving away from a model where growth is primarily driven by large-scale infrastructure projects and heavy industry, towards one where innovation, technological advancement, and a robust service sector play increasingly dominant roles.
Li Jin, a researcher with the SOEs Reform and Development Center at Renmin University of China, highlighted that "high-quality growth will be a key word in this year’s central economic work conference." He further clarified that this concept involves addressing fundamental questions about "how to develop" and "the state of the development." This implies a focus on structural reforms that enhance productivity, optimize resource allocation, and improve the overall well-being of the populace, rather than merely boosting headline growth figures. The emphasis is on the sustainability and equity of development, ensuring that economic progress benefits a broader segment of society and respects ecological limits.
Jiang Chao, chief economist with Haitong Securities, corroborated this sentiment, stating unequivocally that "high-speed growth will not be a goal anymore." He anticipates that the target for the economic growth rate in 2018 will continue to be "downplayed," signaling a clear departure from previous policy mindsets. Crucially, Jiang also asserted that "the country will not go back to investment-driven growth," indicating a firm resolve to avoid a relapse into the old growth model characterized by excessive fixed-asset investment, often financed by debt. This strategic shift is designed to mitigate financial risks, reduce industrial overcapacity, and foster more organic and internally-driven growth.
Historical Context and Policy Evolution
China’s economic trajectory since the late 1970s has been marked by a relentless pursuit of growth. Deng Xiaoping’s "reform and opening-up" initiated an era of market-oriented reforms and integration into the global economy, leading to an average annual GDP growth rate exceeding 9% for over three decades. This period transformed China into the world’s second-largest economy and a major player in international trade.
However, by the early 2010s, signs of structural imbalances began to emerge. Environmental pollution reached critical levels, industrial overcapacity became pervasive, and a rapid accumulation of debt, particularly in the corporate and local government sectors, raised concerns about financial stability. In response, President Xi Jinping introduced the concept of the "new normal" in 2014, signaling an acceptance of slower, but more sustainable, growth rates. This marked the initial phase of acknowledging the need for a qualitative shift.
The subsequent years saw the implementation of "supply-side structural reform," a comprehensive policy framework aimed at addressing five key areas: de-capacity (reducing industrial overcapacity), de-stocking (clearing housing inventories), de-leveraging (reducing corporate debt), reducing costs for businesses, and shoring up weak links (improving public services and infrastructure in underserved areas). The 19th CPC National Congress in October 2017 formally elevated "high-quality development" to a guiding principle, providing the ideological and strategic blueprint for the nation’s economic future. This pivotal congress solidified the long-term vision for China to become a "great modern socialist country" by mid-century, with a strong emphasis on innovation, environmental protection, and social equity.
Data Points Supporting the Transition
Several economic indicators and policy directives highlight China’s ongoing transition:
- R&D Investment: China’s investment in research and development has steadily increased, reaching approximately 2.23% of its GDP in 2019, up from 1.98% in 2012. This places China among the top countries globally in terms of R&D intensity, reflecting the push for innovation-driven growth. The "Made in China 2025" initiative further underscores the ambition to transform the country into a high-tech manufacturing power.
- Service Sector Growth: The service sector has become the largest contributor to China’s GDP, surpassing manufacturing. In 2017, the tertiary sector accounted for over 51% of GDP, demonstrating a structural rebalancing towards consumption and services. This trend continued in subsequent years, reflecting a more mature economic structure.
- Consumption as a Driver: Consumption’s share of GDP has also been rising, gradually reducing reliance on exports and investment. In 2017, final consumption expenditure contributed over 58% to GDP growth, indicating a shift towards domestic demand as a primary growth engine.
- Environmental Protection: China has implemented stringent environmental regulations, closed polluting factories, and invested heavily in renewable energy. The country has become a global leader in solar and wind power capacity. Targets for reducing carbon intensity and improving air and water quality are now integral components of economic planning.
- Financial De-risking: Efforts to de-leverage have led to a slowdown in overall debt growth and a crackdown on shadow banking activities, aiming to prevent systemic financial risks. While a challenging process, it signifies a commitment to more stable financial foundations.
Implications for Domestic and Global Stakeholders
The shift to high-quality growth carries profound implications both within China and for the global economy.
Domestically:
- Economic Restructuring: Industries facing overcapacity, such as steel and coal, will continue to undergo consolidation and reform. New sectors like artificial intelligence, biotechnology, and advanced manufacturing will receive increased policy support and investment, fostering new job opportunities and a more skilled workforce.
- Social Impact: A focus on shared development aims to reduce income inequality, improve public services in areas like healthcare and education, and enhance social safety nets. Environmental improvements will directly benefit public health and quality of life. However, the restructuring process may also lead to temporary job displacements in traditional industries, requiring robust retraining and social welfare programs.
- Regional Development: Policies will likely promote more balanced regional development, addressing disparities between affluent coastal areas and less developed inland provinces. Initiatives like the Xiong’an New Area reflect efforts to create new economic growth poles driven by innovation and green development.
Globally:
- Commodity Markets: A reduced reliance on investment-driven growth could temper China’s demand for certain raw materials, impacting global commodity prices and resource-exporting nations.
- Trade Relations: As China moves up the value chain, its exports will increasingly shift from low-cost manufactured goods to high-tech products and services. This will intensify competition in advanced manufacturing sectors but also create new opportunities for collaboration and trade in high-value goods and services.
- Global Supply Chains: China’s role in global supply chains will evolve. While still a major manufacturing hub, there will be greater emphasis on domestic innovation and self-sufficiency in critical technologies, potentially leading to adjustments in global production networks.
- Foreign Investment: Foreign companies may find increasing opportunities in China’s burgeoning high-tech, service, and green industries, aligning with the country’s development priorities. However, they may also face heightened competition from increasingly sophisticated domestic firms.
- Global Governance: China’s economic transformation will reinforce its growing influence in global economic governance, particularly through initiatives like the Belt and Road Initiative, which seeks to foster infrastructure connectivity and economic cooperation across continents.
Challenges and Opportunities Ahead
While the strategic direction is clear, the path to high-quality growth is not without challenges. Maintaining social stability during economic restructuring, managing debt levels, fostering genuine innovation, and ensuring equitable development across a vast and diverse nation will require sustained political will and effective policy implementation.
Nevertheless, the commitment to a 6.5 percent GDP target, alongside a strong emphasis on qualitative improvements, signals China’s determination to build a more resilient, innovative, and sustainable economic future. This strategic pivot is not merely an adjustment to economic headwinds but a foundational redefinition of what prosperity means for the world’s second-largest economy, with profound implications for both its own citizens and the global community. The upcoming central economic work conference will be crucial in setting the detailed policy agenda for this transformative journey.
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