By Michael Lelyveld
As China’s government pushes economic growth to meet a key Communist Party pledge for this year, its success may depend on a technicality that it has left unresolved.
In 2012, then-President Hu Jintao told the 18th Congress of the Communist Party of China (CPC) that the country should double its 2010 gross domestic product and per capita GDP by 2020 to make development “much more balanced, coordinated and sustainable.”
The GDP targets became enshrined in the CPC’s mission to create a “moderately prosperous society in all respects,” along with the eradication of extreme poverty, in time for the party’s centennial year in 2021.
The task of doubling GDP in a decade has haunted China’s leaders ever since. The target has become a test of the effectiveness of CPC policies and the legitimacy of its controls.
The goal was initially thought to require average annual growth rates of around 7 percent, which were seen as achievable after years of double-digit expansion.
Even as growth rates started to slip, the government kept the promise within reach. In late 2017, a financial leading group official calculated that average annual growth of 6.3 percent for 2018-2020 would accomplish the goal, the official Xinhua news agency said.
But the official GDP growth rate slid to 6.1 percent last year, leaving the outcome in doubt. Then came the pandemic.
First-quarter GDP this year plunged to a record low of negative 6.8 percent. Bloomberg News estimated that growth of 5.6 percent would be needed in 2020 to deliver the doubling, an unlikely prospect given that first-half GDP shrank 1.6 percent despite second-quarter growth of 3.2 percent.
‘Goal was already reached’
But the government may have had a card up its sleeve all along.
On Aug. 2, Xinhua published a “factbox,” asserting that “China is slated to complete the building of a moderately prosperous society in all respects … this year,” in spite of the challenges.
In fact, the news agency suggested, the task of doubling GDP had already been achieved in 2019.
According to data from the National Bureau of Statistics (NBS), China’s GDP topped 99 trillion yuan (about U.S. $14.18 trillion) last year, “more than double from over 41 trillion yuan in 2010,” Xinhua said.
By this reasoning, China had easily surpassed its goal of doubling GDP months ago.
The hitch is that the comparison used GDP values at “current” prices for 2010 and 2019, unadjusted for inflation, rather than “constant” prices that take inflation into account.
The analysts’ estimates of the GDP growth needed to reach the doubling target appear to be based on “real” values adjusted for inflation, although inflation has been only a minor factor because annual rates have been relatively slight.
In 2019, China’s consumer price index rose 2.9 percent, up from 2.1 percent in 2018 and 1.6 percent in 2017.
Uncertainty over numbers
A footnote to the NBS annual report for 2019 leaves the door open to uncertainty about how China’s progress toward doubling has been counted.
“Gross domestic product … per capita GDP and gross national income (GNI) as quoted in this communique are calculated at current prices whereas their growth rates are at constant prices,” it says.
Official reports of Hu’s address to the party Congress in November 2012 did not specify how the doubling of GDP figures was to be counted.
Derek Scissors, a resident scholar at the American Enterprise Institute in Washington, said that inflation “isn’t much of a counter since it’s been low.”
But the effect of excluding it as a factor over the period of a decade allows the Xinhua “factbox” to argue that GDP has already more than doubled by comparing values at current prices for 2010 and 2019.
The facts and figures “show China’s decisive victory in building a moderately prosperous society in all respects is in the offing,” Xinhua said.
The declaration of victory five months before the end of 2020 raises the question of why the government waited so long to make the claim based on GDP data for 2019 that the NBS made public on Feb. 28.
If the argument for doubling GDP was valid, why wouldn’t the government have made it more than five months ago?
Impact of pandemic
On March 18, President Xi Jinping called for just such a “decisive victory” in meeting the economic goals despite the continuing impact of the pandemic.
But as recently as May 22, Premier Li Keqiang stopped short of setting an annual GDP target in his presentation to national legislators, citing the “great uncertainty” of COVID-19 and its effects on the economy.
One possible reason for the delay in declaring the doubling victory is that the government knows that the claim based on a comparison of current prices lacks credibility and may only serve as a fallback argument.
It is unclear whether the government will ultimately hang its hat on the debatable calculation.
On Aug. 5, Xinhua published an interview with Ning Jizhe, deputy head of the National Development and Reform Commission, the government’s top planning agency, citing “great strides in completing the building of a moderately prosperous society … in all respects,” but without repeating the claim of doubling in 2019.
Like the Xinhua account of Aug. 2, the report noted the 2019 GDP figure of 99 trillion yuan but without quoting the data for 2010, implying that the earlier reference may have been a trial balloon.
Another possibility is that the 2019 figures represent an opportunity to make a case for doubling GDP that may not come again soon.
With first-half GDP down from a year earlier and sporadic outbreaks of COVID-19 continuing well into the third quarter this year, the outlook for GDP growth in 2020 is uncertain.
The latest revised forecast from the International Monetary Fund estimates China’s GDP growth this year at just 1 percent.
Even if China ends the year with a positive growth rate, the results may not be known until the annual NBS report next February or March.
The government appears to be taking no chances in seizing on the 2019 numbers to make a case for delivering on the doubling promise before the economic impact of the pandemic was felt.
Hu Jintao policy success
Scissors sees a more important point to be made in comparing Hu’s economic policies with those of his successor, President Xi.
“Most of the doubling of GDP in 2010-2019 was due to the policies of the Hu government,” he said. “Xi’s government controls the decade from roughly 2015 through 2024.”
“What’s the great accomplishment over that period?” he asked.
If China does succeed in doubling GDP convincingly, “that makes it a Hu Jintao victory — set by Hu, enabled by Hu’s policies, and with some targets, such as rural disposable income, met several years ago,” Scissors said by email.
“Meanwhile under Xi, there will be no doubling in a decade, though China is still far poorer than Korea, the United States, etc.,” he said.