China’s rulers comfortable with slowing of economy
The prospect of it falling lower filled them with dread because it was believed to be the level belowwhich mass unemployment would spark uncontrollable social unrest and even the possibleoverthrow of the Communist party.
Particularly in the midst of the financial crisis, when Beijing launched a massive stimulus program torevive its plummeting economy, the mantra among Chinese officials of all ranks was “bao ba” or “ensure 8 [per cent growth].”
But this year, China will undershoot 8 per cent growth for the first time since 1999, when theeconomy grew by an annual rate of 7.6 per cent.
If gross domestic product grows slower than 7.6 per cent for the full year, it will be the weakestshowing for the Chinese economy since 1990.
That is a distinct possibility, given that GDP growth in the first three quarters grew by just 7.7 percent, compared with 9.3 per cent for the whole of 2011.
But something has definitely changed in Beijing, where far from panicking and doing everythingthey can to pump it back up, China’s rulers seem pretty comfortable with their new sub-8 per centworld.
The first and most important reason for their insouciance is that there have been no widespreadlayoffs even as the economy has decelerated for seven consecutive quarters, falling to 7.4 percent annual growth in the third quarter.
According to figures released yesterday, more than 10m jobs were created in China in the first ninemonths of the year and the number of rural migrants working in the cities increased by 3 per centfrom the same period a year earlier to 169m.
Factories making iPhones in central China complain of terrible labor shortages and urbanhouseholds saw real wage growth of 9.8 per cent in the first three quarters, according to officialfigures.
Powerful demographic forces are largely responsible. Slowing growth in China’s labor force thanksto the country’s one-child policy means that the government is under less pressure to promotebreakneck growth to create millions more jobs.
Another reason for the lack of official angst is the fact that a gradual slowdown is exactly whatpolicy makers have been trying to engineer since the beginning of 2011.
At the start of this year, Wen Jiabao, China’s premier, set an annual target of 7.5 per centexpansion, the first time the objective had been set below 8 per cent in years.
At the time, nobody took that target seriously because Mr Wen had been predicting 8 per cent foryears and every year growth came in far above that, hitting a peak of 14.2 per cent in 2007. Mostanalysts and economists expected Beijing to blink, as it has many times before, when growthdropped below the cherished 8 per cent level this year, but instead the government has shownremarkable resolve.
This has been particularly obvious in the government’s refusal to lift strict curbs on a real estateboom.
The meteoric rise in housing prices has stopped and the real estate sector is hurting.
The domestic real estate boom has been a key driver of the Chinese economy, as well as theeconomies of large commodities exporters around the world, for much of the past decade.
But Beijing now really seems to be trying to reduce its reliance on real estate and infrastructureinvestment and promote consumption and services in their place.
This is good news for the long term sustainability of Chinese growth and it is also probably goodnews for most Chinese people, who should see faster income growth (and cheaper housing) as aresult.
But it is worse news for global commodity exporters and for Chinese and foreign companies thathave invested here on the basis of growth being eternally higher than the magic 8 per centnumber.