Thursday, March 27, 2014

Stephen S. Roach — The End of Chinese Central Planning

China, [Chinese Finance Minister Lou Jiwei] went on, is in fact moving away from its once single-minded emphasis on growth targeting. The government now stresses three macroeconomic goals – job creation, price stability, and GDP growth. And, as evidenced by the annual “work report” that the premier recently submitted to China’s National People’s Congress, the current emphasis is in that order, with GDP growth at the bottom of the list.
This gives China and its policymakers considerable room for maneuver in coping with the current growth slowdown. Unlike most Western observers, who are fixated on the slightest deviation from the official growth target, Chinese officials are actually far more open-minded. They care less about GDP growth per se and more about the labor content of the gains in output.
This is particularly relevant in light of the important threshold that has now been reached by the structural transformation of the Chinese economy – the long-awaited shift to a services-led growth dynamic. Services, which now account for the largest share of the economy, require close to 30% more jobs per unit of output than the manufacturing and construction sectors combined. In an increasingly services-led, labor-intensive economy, China’s economic managers can afford to be more relaxed about a GDP slowdown....
Zhou Xiaochuan, the head of the People’s Bank of China, was just as emphatic on this point. The PBOC, he argued, does not pursue a single target. Instead, it frames monetary policy in accordance with what he called a “multi-objective function” comprised of goals for price stability, employment, GDP growth, and the external balance-of-payments – the latter factor added to recognize the PBOC’s authority over currency policy....
 Project Syndicate
The End of Chinese Central Planning
Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm's chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management

5 comments:

Dan Kervick said...

The emerging Chinese middle class has awakened to the reality that on their current path they are literally poisoning themselves to death.

Peter Pan said...

They're still out of paradigm though. Their balance of trade allow them not to worry about deficits.

Matt Franko said...

" The government now stresses three macroeconomic goals – job creation, price stability, and GDP growth. .... the current emphasis is in that order, with GDP growth at the bottom of the list."

Here's Section 2A of the FRA:

"The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."

'Maximum employment' is listed first and yet it places behind 'stable prices' and 'moderate IRs" in policy decisions ALL THE TIME... the order doesnt matter.

Dont expect the western wannabe Chinese to do any different than they have learned.

Tom Hickey said...

They're still out of paradigm though. Their balance of trade allow them not to worry about deficits.

As long as the RMB is pegged to the USD, the Chinese don't enjoy full currency sovereignty. They have the to manage the fx rate instead of letting it float, so fiscal balance can matter.

Tom Hickey said...

Matt, the Chinese government/elite has to be concerned with labor much more than the US government/elite because social unrest is a huge concern there. The US population is much more docile in comparison.