7.5% goal demonstrates China's determination to restructure its economy and transform the development pattern

In response to Premier Wen Jiabao's announcement in his government work report delivered to the ongoing session of the National People's Congress that China will set its GDP growth for 2012 at 7.5 percent, stock markets, especially the Hong Kong stock market, fell drastically amid concerns about China abandoning its years-long efforts to maintain an 8 percent economic growth rate.

However, the markets should not over-interpret China's lowered economic growth target. By decelerating its GDP growth to 7.5 percent, the slowest since 2005, the Chinese government aims to promote the quality of its economic growth.

The slightly lowered GDP target is a reflection of China's determination to reduce its dependence on GDP-centered economic development and push for a long-overdue economic transformation. It also demonstrates the Chinese government's efforts to expand domestic demand to promote its sustainable economic growth at a time when the global economic recovery remains impotent.

In its 12th Five-Year Plan (2011-15) outline, the central government had already lowered its annual economic growth rate to 7 percent.

It remains an indisputable fact that China's actual economic growth in recent years has been much higher than targeted. The country's economy grew by 10.3 percent year-on-year in 2010 and 9.2 percent in 2011 despite the global financial crisis and growing internal and external uncertainties. Under these circumstances, it is very natural for the country to set a moderately lower growth rate for 2012 to fit it with the overall 12th Five-Year Plan and improve the nation's economic quality and its effects.

Lowering its expectations for economic growth also shows China's determination to push forward its desperately needed economic structural adjustment and transformation of its economic growth pattern. The country's rapid economic growth since reform and opening-up, especially in the last decade, has been achieved largely on an extensive basis. This is one of the main reasons for some at home and abroad casting doubt on the quality of the country's GDP and its statistical accuracy. Some economists have also doubted China's ability to sustain its economic growth, arguing that it can no longer maintain economic growth which has been attained at the cost of the environment and the well-being of the majority of ordinary people.

It is natural that China should strive to improve its economic growth quality, especially after several decades of high-pace development, in order to address such misgivings.

Raising the quality of the country's GDP will require efforts to boost its economic growth without excessive exhaustion of its resources and a deteriorating environment. It should also not draw on future economic development potential in pursuit of short-term performance.

To attain these targets, China badly needs to make some policy and systematic arrangements to ensure that none of its GDP growth measures will damage its efforts for environmental protection and sustainable development.

An excessive credit expansion has made China a real estate-dependent economy over the past years. Under a series of preferential credit policies, the concentrated flow of domestic funds to the real estate market has seemingly transformed the country into the largest construction site in the world. Such a property-dependent economic development model has seriously eroded the country's future development potential and also endangered its sustainable development.

Much worse, the huge real estate bubble has also brought huge risks to the country's financial market and simmering social contradictions as the result of the uneven wealth distribution it has caused. At the same time, the real estate-supported economic growth has also hampered China's efforts to transform its economic pattern, squeezed residents' consumption capabilities and slowed the country's ongoing industrial structural adjustments.

At a time when the domestic real estate market has produced a serious "squeezing effect" on other industries, what the country should do is extricate itself from the housing-hijacked economic development model and improve its GDP quality. So the country should not relax its regulation of the housing market in order to return property prices to a reasonable level.

It is expected that the slightly lowered GDP target will not result in a considerable decline of this year's national economic growth from the previous year. But it will help shift the country's economic growth from the quantitative pursuit of the past to qualitative pursuit for the future.

The author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences.

(China Daily 03/07/2012 page9)