On May 21st, at the Two Sessions of the National People’s Congress and the CPPCC, Beijing announced that it was dropping its GDP growth target for the year. China normally sets a GDP growth target as part of its economic planning, and has largely succeeded at achieving it, at least in its official numbers.
The COVID-19 pandemic, however, has made any Chinese attempt to achieve its usual growth metric exceedingly difficult, if not impossible. China’s aggressive strategy of containment and lockdowns — while effective at controlling the initial outbreak — had a significant impact on the country’s economy: initial data suggests that China actually saw an economic contraction in the first quarter of the year.
While dropping the growth target was likely a reluctant decision, China should perhaps see it as an opportunity to develop new metrics for economic planning. Chandran Nair made this argument in The South China Morning Post soon after the decision from Beijing, writing:
But putting aside the reasons behind it, the decision to drop the growth target should be viewed as a blessing in disguise. The more Beijing weans itself off economic growth as the economic metric, the freer it will be to pursue more suitable and sustainable economic policies to better tackle the challenges China and the world will face in the 21st Century.
There’s already evidence — and concern — that some places in China are starting to roll back certain environmental pledges, such as the shift away from coal power, in order to “make up for lost time.”
But what are the costs of relying on growth as a metric? And what, potentially, should replace it?
The idea of whether economic growth is “good” is surprisingly contentious. On the one hand, economists accept that economic growth will eventually be constrained by scarce resources, which can only be overcome by productivity gains; in a saying commonly attributed to the economist Kenneth Boulding, ““Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.”
Growth is a means to an end: the improvement of living standards amongst a population to some defined level of “prosperity.” Once we have reached that point — however it is defined — growth is not strictly necessary. A comparison can be made to Japan: low growth has plagued the Japanese economy for decades, but it is not clear that the Japanese people are any worse off because of it.
