Will China reach its growth target? by Shang-Jin Wei
Will China reach its growth target?  by Shang-Jin Wei

Will China reach its growth target? by Shang-Jin Wei

China’s GDP growth target for this year looks very challenging in light of the Ukraine war and the US monetary tightening. The goal remains feasible, but only if Chinese policy makers return to the kind of market-oriented reforms and regulations that have proven successful in the past.

NEW YORK – In early March, Prime Minister Li Keqiang announced that China is aiming for GDP growth of “about 5.5%“This year. It would be ambitious even without Russia’s war on Ukraine and the accompanying rises in global energy and food prices. Back in January, for example, the International Monetary Fund predicted that the Chinese economy would only grow by 4.8% in 2022. And in 2019, the last full year before the COVID-19 pandemic, GDP rose by just under 6%.

By my calculation, the decline in China’s working age population reduces the economy’s potential growth rate by about 0.2 percentage points per year. So if all other factors were like those that were prevalent in 2019, China’s GDP could potentially grow in 2022 by around 5.4%.

But today, both the Ukraine war and an expected series of interest rate hikes by the US Federal Reserve this year have made the external environment much less favorable for growth. OECD discretion that the recent rise in energy and food prices triggered by the conflict will reduce global GDP growth by more than one percentage point. Given that China is a major importer of oil, gas, wheat and other raw materials, its growth may slow down by a similar amount.

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