China’s premier Li Qiang gave a speech at the opening of the China International Import Expo (CIIE) in Shanghai this week providing some clarity on GDP targets, and what it boils down to is that they have let themselves off the 5% hook. He predicted the economy’s size to be RMB 170 trillion by 2030, which implies an annual growth rate of roughly 4% from current levels. An official study guide on the 15th five-year plan (FYP) published this week also declared 4.17% to be annual GDP growth rate target to reach the 2035 number first chosen.
Putting questions about reported GDP growth numbers to one side, consistent 4% growth is still stunning for a major economy. For the US and other mature economies, 2% is considered very solid, and 3% as turbo-charged. Is 4% achievable? We, yet again, hit the transparency problem, and have to fall back on atmospherics, and the collective word on the street is not positive.
The word “drift,” in fact, seems to apply. People were looking to the 4th Plenum and the 15th FYP to be some kind of a defining moment in the narrative, but it doesn’t seem to have been so. The Chinese stock market is riding high, it is true, but the word from those who play it is that it can only be safely played based on insider trading info and assumptions on government policy. The connection to the real economy is tenuous.
On the other hand, regardless of what the direction is, consistency of policy is a benefit for major companies in terms of planning and investment, and China has it. Although there is often a disconnect between central policy direction and local government implementation which can result in waste—EV cars and AI being two recent examples. But the almost Voltairian view of China as the meritocratic/bureaucratic perfect system has its supporters.
And speaking of systems, the US had a mini-election day on Tuesday, which added some extra nuance to US politics. Our guess would be that the next year is going to be incredibly volatile over there in America with the Trumpists pushing hard to implement their agenda as they see opportunities shrinking, thereby increasing the likelihood of them going too far and alienating significant groups. There is a deep relevance of this to China, both in terms of the actual policies of the US system and also in how a system with transparency and flexibility handles problems.
Have a great weekend!