Slowing China

BERKELEY – With the world’s rich countries still hung over from the financial crisis, the global economy has come to depend on emerging markets to drive growth. Increasingly, machinery exporters, energy suppliers, and raw-materials producers alike look to China and other fast-growing developing countries as the key source of incremental demand.

But Chinese officials warn that their economy is poised to slow. In late February, Premier Wen Jiabao announced that the target for annual GDP growth over the next five years is 7%. This represents a significant deceleration from the 11% rate averaged over the five years through 2010.

Should we take this 7% target seriously? After all, the comparable target for the last five years was just 7.5%, and the Chinese authorities showed no inclination to rein in the economy when the growth rate overshot. On the contrary, they aggressively ramped up bank lending when global demand weakened in 2008. And they were notoriously reluctant to allow the renminbi to appreciate as a way of restraining export growth.

Of course, it is difficult to be too critical of past Chinese policies. The country’s growth has been nothing short of miraculous. Post-2008 policies enabled China largely to avoid the global recession. And there is something refreshing about officials who actually promise less than they deliver.