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Mar. 10, 2015 - Updated 04:16 UTC

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China Lowers Growth Target

Mar. 7, 2016

Thousands of delegates from regions across China are discussing their government's priorities, and high on their agenda is how to grow the economy.

They met in Beijing on Saturday for the start of the National People's Congress. Premier Li Keqiang announced some economic targets that made headlines.

Li said leaders want average growth of at least 6.5 percent over the next 5 years.

That's down from the previous 5-year plan set in 2011. That target was 7 percent. For 2016 alone, leaders are targeting growth of 6.5 to 7 percent.


NHK World's Daisuke Azuma joined anchors Aki Shibuya and Sho Beppu in the studio from Beijing.

Shibuya: So Daisuke, the 5-year target is lower than the previous one. What's the rationale?

Azuma: Well, Chinese leaders want to double the size of the economy over the 10-year period to 2020. That means for the next 5 years they need to hit that 6.5 percent level. But at the same time they're shifting their focus away from rapid growth to structural reform. China's economy has been growing flat out for decades. That's created dramatic wealth inequality, and caused severe damage to the environment. The government believes it needs to slow down and start overhauling some state-owned enterprises.

"We have taken into consideration the need to finish building a moderately prosperous society in all respects and the need to advance structural reform."
Li Keqiang, Chinese Premier

Beppu: On the other hand, wouldn't lower growth targets worry global investors? What's Beijing's take on that?

Azuma: China's top economic planner said on Sunday that a hard landing would "absolutely not" happen. Xu Shaoshi said if China can keep its economy expanding at least 6.5 percent per year, then they can create enough new jobs. And he said China's import volume and overseas investment are both on the rise. But China needs a new model. Cheap labor has been a crucial ingredient in China's economic success. But years of rapid growth have driven up labor costs. And along with the higher incomes and slowing growth, some observers argue China could fall into the trap of remaining a middle-income country. The premier addressed that issue.

"In the next five years, we have to avoid falling into the middle income country trap, and the imbalances and risks are increasing dramatically. We have to deal with these challenges appropriately, as we steer this gigantic economy through uncharted waters."
Li Keqiang, Chinese Premier

Beppu: So what is Beijing planning to do in order not to fall into this trap?

Azuma: Firstly, the government is getting behind industries that make high-end, value-added products. It's also been tightening intellectual property laws to help companies that develop cutting edge technology. Secondly, it plans to target heavy industries that suffer from excess production capacity. It says it will overhaul so-called zombie companies, which lose money but stay afloat with help from local authorities and banks. The government wants to consolidate these companies by liquidating some and merging others. These efforts will make industries more efficient and competitive. But there's a downside. They will potentially put a lot of people out of work. So the focus is on how Beijing will pursue structural reforms while limiting any damage they cause.