SHANGHAI — Chinese leadership set a gross domestic growth target of 7.5 percent for 2012, the first time the government has lowered its annual GDP expansion forecast below 8 percent since 2005.
Premier Wen Jiabao issued the new economic forecast during the opening session of China’s annual parliamentary meetings in Beijing this morning, according to reports from the state-run Xinhua news agency.
“Here I wish to stress that in setting a slightly lower GDP growth rate, we hope to make it fit with targets of the 12th Five-Year Plan, and to guide people in all sectors to focus their work on accelerating the transformation of the pattern of economic development and making economic development more sustainable and efficient, so as to achieve higher-level, higher-quality development over a longer period of time,” said Wen, according to Xinhua.
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Wen said maintaining stability would be a key focus of Beijing’s economic planning this year, acknowledging that the country continues to face “many difficulties and challenges in economic and social development.”
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Such challenges include a growing gap between the rich and poor, an overheated property sector and inflation, which is making many of China’s urban centers unaffordable for the country’s burgeoning middle class and migrant worker populations. Wen set targets for inflation this year at around 4 percent, Xinhua reported.
He also stressed the importance of bolstering domestic consumption in order to keep the economy expanding at a healthy rate while decreasing China’s dependency on foreign exports.
Shaun Rein, head of the Shanghai-based consultancy China Market Research Group and author of “The End of Cheap China: Economic and Cultural Trends that will Disrupt the World,” said Beijing’s economic engineering for 2012 should boost confidence for companies operating on the Mainland.
“It is very healthy,” Rein said. “It is not about growth at all costs anymore. It is about sustainability. The government is pushing for more consumption and services. This is a good thing for brands. Retail sales is the place to be to stay ahead of the curve.”
“It is a way to let the market know China is now going to grow as fast,” he added. “It is a way of managing expectations.”
However Yin Xingming, an economics professor at Shanghai’s Fudan University, said he expects the economy to still grow well beyond the 7.5 percent target.
“If the target is too high, it will cause the economy to overheat,” Yin said. “Local governments will speed up their economic growth, but they cannot prevent the overheating of the economy. At the end the national economic growth will be eight or eight and a half percent but the real growth rate will be much higher than their expectation.”
Yin said that any policy changes aimed at slowing economic growth, evening out income disparities and reining in inflation should be viewed favorably by companies as it means more Chinese will enter the country’s expanding consumer class.
“The basic feature for the Chinese economy even for today is that demand is much, much stronger than supply,” Yin said. “There are more and more orders form the market and there will be more job creation this year. Most firms should view any policy changes positively.”