China’s fascination with numbers is not new, and as the global economy slows in 2009, it has decided to fixate on the magic number 8, this time in the form of the predicted GDP growth number for this year.
State media has reported that an 8% growth rate is considered necessary to absorb new workers entering the labor force. On the face of it, that may seem somewhat arbitrary, not to mention ambitious, given that so many incalculable factors are tied into that single figure.
But China controls more of those factors than does the US, which is now fighting to see any growth at all this year. The Chinese have cash, both in the government coffers and in terms of personal savings stacked up in banks, and the major Chinese companies are dramatically underleveraged compared to most companies in the West. Beijing can order the release of credit in a way Western governments cannot, and they can spend as much as they like on infrastructure.
Even so, 8% growth for this year sounds optimistic, and some government officials – such as Liu Mingkang, the China Banking Regulatory Commission’s chairman – have expressed doubts about whether it will be achieved. There is a fear that if 8% growth is not reached, the unemployment rate could lead to widespread instability.
Over-emphasis on 8% as the cutoff point between stability and instability is not helpful. It would be foolish to assume that a 7.5% growth rate would certainly lead to unrest, just as it would be silly to assume 8% growth would avoid it.
Numbers are also very flexible in this country, and just as it has been argued that China has tended to under-report growth in boom years, we can expect the opposite to happen when times are tight.
The alternative view is that 8% growth for China in 2009 is achievable, even if it means relying on the multiplier effect of infrastructure spending and building a freeway to every village in the country.
The longer-term issues are harder to control and the outlook harder to guess. There is a view that China may find it trickier to emerge from this crisis than Western nations for structural reasons. But one step at a time is the approach China and many other governments will take for now. First get safely through 2009, then think about 2010.