More tolerance toward recession
In this year, the Chinese government sets an economic growth target of around 7.5%. What’s different this time is that such number doesn’t mean the lower limit for the economic growth. As explained by Premier Li Keqiang, government can let growth fluctuate around 7.5% according to different changes of employment and inflation.
Economic growth target is the most important policy goal for the annual governmental work. Over the thirty years, as long as there is no high inflation for the economy, this figure is always the bigger the better. Therefore the past policy economic growth targets generally mean the lower limits.
Of course, rapid economic growth is very important: Premier Li pointed out that the lower limit is to ensure steady income growth and employment. Though in the past more than ten years, the rather fast GDP growth has paid the price of environmental pollution, income distribution gap and the imbalance of economic structure, and it has also played decisive roles in solving the employment problem and increasing household income. The lower limit of the economic growth of 7.5% in the past years is to create the annual 10 million new urban jobs and provide opportunities for the 6-7 million newly added rural migrant workers who come to cities for work. The whole covering of the rural elderly care and medical insurance and the large-scale security housing construction launched by the government, the around 10% increase for the annual average wage in various regions, and the 10% annual average increase for basic retirement pension also benefit from the economic growth of over 7.5%.
Economic growth always fluctuates because of technological innovations external demands changes and the upgrading domestic consumption etc., there will always be some outdated products or excess production, and there will also be certain labor forces with skills behind the times. Whenever at this time, the economic growth will slow down, and some enterprises will go bankrupt and workers will lose their jobs, thus the outdated production capacity can be eliminated, urging workers to improve their self-abilities to adapt to new changes.
But the process is very painful. The high unemployment rates in countries of the U.S. and Europe are the high voltage wires for politics, and they can determine the length of the political lives for politicians. In China, the actual unemployment rate is also the most important leading indicator for social stability. In the time when maintaining stability is of top priority, the rather large scale enterprise closing down, suspending operation, merging with others or shifting will trigger the behaviors of unemployed persons such as protests and appealing for help etc., thus the government is obliged to intervene in economy so as to avoid the bankruptcy of enterprises.
However, we need to understand that one day we will lose what we should not gain. In European countries like Greece and Spain etc., the strict labor force protection policies and high welfare policies are implemented, but these labor forces have not much competitiveness in the world. Under the background of global competitions, a whole country has been defeated utterly, and the result that some labor forces have not experienced the survival of the fittest is the suffering of the whole people. Before 1998, the situation of China’s state-owned enterprises was also like this. Today, we are facing the same problem.
Viewing from particular examples, in the past five or six years, there are too many real estate projects going to operation in the third-tier cities in China. There have already been seriously surplus in these property supplies while wages of building workers rise rapidly at the same time. The same phenomenon also appears in the wages of the first-line operation personnel of the manufacturing industry, and the wages of some employees in the financial industry with the banking industry as the representative are high. If we always want to guarantee the economic growth, the decline of the newly increased employment and wage rise tendency in these industries is hard to be realized, not to mention the adjustment of economic structure.
In this sense, for the economic growth, it’s impossible that there will always be full employment, and it’s also impossible to maintain the household income growth all the time. Because there will always be some enterprises that make wrong judgments for development directions, so they have to be eliminated by the market, and the employees of these enterprises will naturally loose their jobs. Also there will always be some workers who make no attempt to make progress, indulge in their previous achievements or positions, such as the automobile workers in Detroit of the U.S. and the employees in most state-owned enterprises in China before 1998.
During the two sessions of NPC & CPPCC, Premier Li Keqiang mentioned that we should fully deepen the reforms and continuously promote decentralization, letting the market play roles effectively. In this sense, the excessive intervention from the government on economic growth target should be reduced, and we should have more tolerance for allowing economic recession. The rebuilding of economic structure with the force of the market is the symbol that the market is playing roles.
Published on Xinmin Weekly | 2014-3-24
