Is a "Decisive Role" for Market Forces in China Compatible with a 7 Percent Growth Target?

The Chinese government is early next year expected to announce a 7% growth target for 2014, a rate China has managed to exceed every year since 1990.  Chinese growth has also exceeded the government target at least as far back as 2001 (the first year for which we have found such targets); the target has therefore in essence been a floor.  In contrast, as today’s Geo-Graphic shows, the White House has overestimated U.S. growth 70% of the time since 2001.

The communique released following the recent Third Plenum of the Chinese Communist Party included the much-heralded statement that market forces should play a “decisive role” in allocating resources going forward, but this is likely to be difficult to reconcile with a 7% growth floor.  Many, ourselves included, have argued that China’s recent growth has been driven by unsustainable overinvestment.  Since growth in recent years has slowed virtually to match the 7.5% target that had been set for 2012 and 2013, we doubt that a 7% target can be met over the coming several years without the government steering lending and investment even more aggressively towards manufacturing and construction, where the bubble-evidence is most compelling.

The Economist: The Party’s New Blueprint

CPC Central Committee: The Decision on Major Issues Concerning Comprehensively Deepening Reforms In Brief

BeyondBrics: China Reform Plan in Summary

Wall Street Journal: Map Done, China Faces Reform Roadblocks

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