China Wants To Have It All

China’s five year economic plan is as ambitious as any laid out by the U.S. during the 1960s and 1970s. The Chinese have set a 7% GDP growth target for each year though 2015. Plans announced at the National People’s Congress also include holding the inflation rate of only 4% this year. The central government also means to rid the country of poverty by 2020.

Ambitious goals often become more ambitious when the timeline to reach them is spread over many years. Forecasts for one year can be based on facts at hand. Forecasts for goals which are five and ten years away are useless.

Experts on China were quick to point out that a number of problems, some present and some future, could scuttle the plans of the People’s Republic. The most obvious of these is inflation. Companies in China have to pay higher wages to get skilled workers. That has caused some firms to move factories inland where cheap labor is more abundant than it is in the country’s huge factory towns. Crude oil prices many rise for months or even years. That will cause even more inflation and could push a larger portion of China’s population below the poverty line.

China’s only hope to solve the inflation problem is to cut its growth plans well below 7%. It will have to become closer to a “normal” nation when it comes to GDP expansion. That does not mean its huge economy will not be able to grow by 5%. That would at least keep the demand for commodities and oil at a modest level. It would probably cool inflation as well. But, China would have to admit that it has hit a wall.

An economy with GDP of $5 trillion will not be able to fix its problems by simply saying that its National People’s Congress has set new goals.

Douglas A. McIntyre