ISSN 2330-717X

China Pushes Economic Recovery To Meet CPC Goals – Analysis


By Michael Lelyveld

As the peak of the COVID-19 epidemic passes in China, there are signs that pre-crisis Communist Party goals are playing a part in the push to get back to work.

Despite an expected double-digit drop in first-quarter growth rates, party and government leaders have repeatedly pressed officials to meet China’s longstanding socio-economic goals for this year.

On the economic side, President Xi Jinping, the general secretary of the Communist Party of China (CPC), has insisted on fulfilling the CPC targets of doubling the country’s 2010 gross domestic product and per capita GDP by the end of 2020, in spite of the COVID-19 setback.

The goal of creating a “moderately prosperous society” by eliminating poverty in time for next year’s CPC centenary has also figured prominently in official statements on spurring China’s economic recovery.

“As the COVID-19 epidemic has had an impact on China’s economic and social development, the CPC is making all-out efforts to resume work and production … and continue poverty alleviation work in order to realize the development goals and tasks for this year,” said an official commentary on disciplining under-performing officials in late February.

“There is no room for hesitancy or inaction,” it said.

In an earlier phone call with British Prime Minister Boris Johnson, Xi said that “China is confident of fulfilling this year’s economic and social development goals, especially the major tasks of reducing poverty and building a moderately prosperous society in all respects,” the official English- language China Daily reported on Feb. 19.

Eliminating extreme poverty as defined by the government will have major consequences for the 5.5 million rural poor whose annual incomes still fall below the official threshold of 2,300 yuan (U.S. $324), according to state media. It would also represent a historic achievement for the CPC.

Even before the added challenge of the epidemic, the official anti-poverty benchmark was expected to rise to over 4,000 yuan (U.S. $564) this year, according to Liu Yongfu, head of the State Council Leading Group of the Office of Poverty Alleviation and Development.

In April, anti-poverty officials seemed to be doubling down on the 2020 goals in a series of state media reports.

“China can achieve its goal of pulling all people out of poverty by the end of this year as the … outbreak only has limited impact on impoverished regions,” another official of the poverty office claimed.

The anti-poverty goal appears to have provided a push for some 2.1 million migrant workers from 52 counties classified as impoverished to return to their jobs.

“They account for 83 percent of last year’s migrant workers in the 52 counties,” said Wang Chunyan, deputy director of the office’s general department.

More of a numbers game

The pursuit of doubling GDP in a decade has turned into more of a numbers game.

Suspicions of manipulation were raised last November when the National Bureau of Statistics (NBS) issued a 2.1-percent upward revision of its GDP figures for 2018.

The NBS claimed the change was based on the results of a once-in-a-decade economic census, but perhaps coincidentally, the move kept the doubling target within reach, Reuters reported.

Despite the agency’s argument for the adjustment, “it’s hard to ignore the fact that it will also help them meet official growth targets,” wrote Julian Evans-Pritchard, senior China economist at Capital Economics in a note cited by Reuters.

Even with the adjustment, GDP growth rates of about 6.2 percent for both 2019 and 2020 were expected to be needed to meet the doubling goal, the news agency said.

In February, the NBS quoted the 2019 GDP growth rate as 6.1 percent, leaving little or no room for additional slippage. Then came the major downturn of COVID-19.

The unplanned plunge suggests that the goal of doubling GDP can only be met with an equally dramatic “V-shaped”
recovery, starting perhaps as soon as the second quarter of the year.

The NBS website shows just such a turnaround in a V-shaped graph of its Purchasing Managers Index (PMI) for March, holding out hope for growth in the broader economy.

The PMI for manufacturing jumped to a reading of 52.0, shooting up suddenly above the 50-point mark between expansion and contraction, after sinking to 35.7 the month before.

The sharp PMI rebound and the acceleration of back-to-work efforts has buoyed official hopes that first-quarter GDP may not be as bad as the 10-percent to 11-percent contraction that many economists expect.

Timing, extent unclear

The timing and extent of the recovery are far from settled, however.

Earlier this week, the South China Morning Post reported that “most private economists generally agree there would be a turnaround in the second quarter,” although there is still debate about the strength of the rebound.

At a CPC leadership meeting this week, Xi “demanded redoubling efforts in economic and social development,” the official Xinhua news agency reported. But he also cited “new difficulties and challenges for China’s work resumption,” in apparent reference to “imported” cases of COVID-19.

Despite the encouraging PMI signal, Derek Scissors, an Asia economist and resident fellow at the American Enterprise Institute in Washington, said the first-quarter drop could be as deep as 18 percent.

“A purely domestic recovery is underway but the bigger foreign hit is still to come,” Scissors said.

“I think China may admit as much as a 9-percent contraction, given their February reporting (on industrial output) and how bad things are elsewhere,” he said.

Projections on whether China can still double GDP in the decade become cloudier as the year progresses, in part because much depends on the difference between official reporting and actual growth rates, Scissors said.

Negative year-on-year growth in the second quarter is inevitable, said Scissors, although the government may argue that positive growth has started and will continue with a strong recovery throughout the year.

If the first-quarter decline is as steep as 18 percent, however, full-year growth will be near zero, Scissors said.

GDP doubling ruled out

The forecast appears to rule out the doubling of GDP by the end of 2020, at least in real terms, that is, adjusted for inflation.

This week, the South China Morning Post cited 5.6-percent growth for this year as the minimum needed to meet the doubling goal.

State media reports frequently refer to the doubling target without specifying whether GDP growth is stated in real terms or nominal figures that are not inflation-adjusted.

In a footnote to its statistical communique for 2019, the NBS says that GDP figures are calculated at current, or nominal, prices. But growth rates are calculated at constant prices, reflecting inflation adjustments.

One economic effect of the epidemic is that it has bought the government some time with the postponement of the annual legislative sessions, which have traditionally taken place in early March.

At this year’s meeting, Premier Li Keqiang had been expected to set a GDP growth target of “about 6 percent” for this year, keeping the goal of doubling within the realm of possibility, although highly unlikely given the pandemic effects.

Last week, a central bank official suggested that the entire target-setting exercise should be scrapped for this year.

“An unrealistic target would push local governments to take aggressive stimulus measures, especially by promoting infrastructure investment,” said Ma Jun, a member of the People’s Bank of China (PBOC) monetary policy committee.

“That could lead to a ‘flood’ of monetary easing, and capital intensive infrastructure investments would not be helpful for reducing unemployment in the short run,” Ma said in a China Daily report citing the official Economic Daily.

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