China Failing to Cool off GDP Growth as Some Cities Plan for 30% Increases

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Jan. 26 – The difficulties of changing the mindsets of many of China’s city and provincial governments are beginning to show as many have set ambitious growth targets for the next Five Year Plan. The China Daily has reported that over the next five years, many have set ambitious targets of double-digit yearly expansion each year until 2015.

According to new local five-year plans released this month, many provinces and cities have set high GDP growth targets while the National Development and Reform Commission, China’s economic planning body, has set the national target at a more modest 8 percent for 2011.

The southwestern municipality of Chongqing has targeted an annual growth rate of 12.5 percent in the next five years and planned to make 2015’s local gross domestic product double that of 2010. East China’s Anhui Province, South China’s Guangxi Zhuang Autonomous Region and Northeast China’s Heilongjiang Province also plan to make their GDP in 2015 double last year’s figure.

Some cities and regions even targeted much higher growth rates. Jiangmen, in South China’s Guangdong Province, set an annual growth target of 15 percent from 2011 to 2015. Pingshan New District in Shenzhen, Guangdong set its rate at 30 percent.

Only a few cities lowered their growth targets. Shenzhen aimed at an annual GDP growth rate of 10 percent during 2011-2015, down from 13.5 percent over the past five years.

Zhang Xiaojing, an expert with the Institute of Economics at the Chinese Academy of Social Sciences, attributed local governments’ eagerness to pursue high growth rates to the fact that central authorities see GDP growth as a key indicator illustrating the achievements of local governments. Experts have warned that overheated economic growth might not be good for sustainable development. Zhuang Jian, an economist with the Asian Development Bank, said he worried that China’s economic growth might become overheated.

“Provinces’ high growth expectations would surely raise the national growth level, which will not be good for sustainable development,” he said. China’s major aim over the next five years is to slow its economic growth. Maintaining fast growth would require traditional resources-dependent development to continue, he said. Zhuang said development should be more sustainable.

“We should develop new economic growth points and promising industries that do not rely largely on resources but are more dependent on technology,” he said.

“Many governments are hand in hand with local businesses, especially developers, with both in tandem striving to make large returns,” Chris Devonshire-Ellis, principal of Dezan Shira & Associates, points out. “Much government investment is actually tied up in commercial activities, especially property, and many gains being made are recognizable on paper only. Property prices are being driven up yet many of them still lie empty. Old habits die hard, and while the Central Government has for nearly twenty years focused on GDP growth, an entire mechanism has developed that is only really capable of feeding theoretical growth and lacks any real resale value or flexibility to manage growth in any other way. China is going to have a tough time in taking down a reporting and target structure that is increasingly in part looking to having encouraged the building of castles in the air.”

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