Ma Jun, a former chief economist at China’s central bank, recently told a conference that China’s practice of setting GDP growth targets has caused too many drawbacks and suggested that the practice should be “permanently abolished.
Speaking at a symposium organized by the China Wealth Management 50 Forum, Ma Jun suggested that GDP growth targets should be permanently scrapped from this year onwards, with employment stabilization and Inflation control as the main macro policy goals, the South China Morning Post and other media reported Tuesday (Jan. 26).
Ma Jun used to be a member and chief economist of the Monetary Policy Committee of China’s central bank (People’s Bank of China) and is now director of the Center for Finance and Development Studies at Tsinghua University in Beijing. He said GDP figures can be used as a basis for forecasting fiscal revenue and expenditure and investment behavior, but “they should not be used as an indicator to assess the business opportunities of local government officials.
He pointed out that the central government set GDP growth targets, and local governments are accustomed to adding layers of codes for their own performance, setting local GDP targets high. Ma Jun said, this rely on borrowing money to invest to boost GDP than other methods are certainly easier, but therefore also increased the financial risk of hidden debt.
Ma Jun said it is generally believed that the initial period of high debt may create a “miracle” of economic prosperity, but in the long run, the false economic prosperity will certainly lead to a bubble economy.
The Chinese Communist Party‘s use of GDP as a major indicator for examining the performance of local officials has long been widely criticized by public opinion. In order to put together figures for rapid economic growth, officials have fudged the numbers, causing massive pollution of China’s rivers and lakes and serious harm to people’s health.
Ma Jun mentioned that bubbles have emerged in some areas that cannot be unrelated to the currency. As an example, he cited that in 2020, several major stock market indices in China have risen sharply, close to 30%, and it is impossible that such a bull market emerged in the face of a significant drop in economic growth is not related to the currency. In addition, housing prices in Shanghai and Shenzhen have risen a lot recently, and these are all related to changes in liquidity and leverage.
In his work report at the third session of China’s 13th National People’s Congress on May 22 last year, Chinese Communist Party Premier Li Keqiang made it clear that China will not set a GDP growth target for 2020, the first Time since China began setting economic growth targets in 1994 that it did not propose a specific target.
Ma Jun pointed out that many developed countries and the vast majority of middle-income countries have abandoned GDP growth as a macroeconomic control target and instead “made employment stabilization and inflation control the main objectives of macroeconomic control”.
Chinese central bank governor Yi Gang expressed a similar view on Tuesday. He said China’s monetary policy will continue to support economic growth, while focusing on debt and non-performing loan risks. Yi noted that there are two risks, “one risk is that China’s macro leverage ratio increased last year, and the second risk is the increase in non-performing loans.”
Ma Jun said that in the first three quarters of 2020, China’s macro leverage ratio rose 25 percentage points, the highest rise since 2009. The sharp rise in leverage raises the risk of a financial crisis.
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