China sets 8% growth target for 2011

03/07/2011 8:00 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Does Beijing really mean it?

On Saturday, March 5, China’s leaders announced a new five-year economic plan that set a target of 8% growth in China’s GDP this year and average annual growth of 7% over the next five years.

That would be a huge change for a country that saw 11.3% average annual growth over the last five years.

The government also said it planned to keep prices stable through 2015 (the official inflation rate was 4.9% in January) and to increase household income by 7% on average during the five-year period.

If China actually achieves these goals, they would have profound effects on the global economy. Slower economic growth would mean slower growth in demand for global industrial commodities such as iron ore, oil, and coal. Faster income growth—and during the last five years growth in the income of China’s workers badly lagged the rate of economic growth—would mean more demand for everything from cosmetics to cars to chicken.

I don’t think there’s any reason to doubt that China’s leaders take these goals seriously and intend to reach them. I just doubt that they can actually deliver. This isn’t Chairman Mao’s command economy anymore. The economic liberalization that has powered China’s economic growth has produced a number of powerful companies, industries, and, yes, even classes that have a vested stake in business as usual. I don’t expect the companies that have thrived during a period dominated by an economic policy tilted toward heavy industry and exports to just quietly say, Okay.

Don’t underestimate the political power of these economic interests either. Many of the companies that have made big money out of this economic policy are connected to the sons and daughters of top Chinese leaders or to the economically powerful and ubiquitous People’s Liberation Army.

Prime Minister Wen Jiabao proposed but the Party no longer disposes. At least not without push back from China’s wealthy.

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