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China’s Growth Challenge

BEIJING – Throughout the just concluded 18th Congress of the Chinese Communist Party ubiquitous television screens in trains and metro stations broadcast a live feed of the Chinese assembly. Beijing’s busy people, however, seemed not to pay close attention: for them, it was business as usual.

The Chinese public’s indifference to their country’s ceremonial transition of power is hardly surprising. All critical decisions were taken well ahead of the Congress, behind closed doors, with very little input from outsiders. This apparently seamless transition, however, is widely expected to usher in a complex and potentially difficult decade for China – and for the rest of the world.

China is at a turning point. With more than 100 million people still below the official poverty line and per capita income currently just over $6,000 in nominal terms, robust economic growth must be maintained. Outgoing President Hu Jintao indicated that China’s total GDP and per capita income should double by 2020, which will require 7.5% average annual growth. Is this feasible?

Recent improvements in data for industrial production, fixed investment, and retail sales suggest that the Chinese economy, which had slowed in recent quarters, may already be on the mend. But the authorities remain cautious, given that China’s economic outlook depends heavily on external conditions, which is the source of most current uncertainty. However, as things stand, most independent economists expect 7-7.5% annual GDP in 2013-2017, while the International Monetary Fund forecasts a more optimistic 8.2-8.5% rate during this period.