China’s Growth Target Not a Concern

03/12/2012 11:30 am EST

Focus: GLOBAL

Jim Jubak

Founder and Editor, JubakPicks.com

The lowering of the target growth level for the Chinese economy took many by surprise, but MoneyShow’s Jim Jubak explains why he thinks global investors should not be concerned.

China’s leaders announced that they would be cutting their growth target for 2012 to 7.5%—like we would be really disappointed to get 7.5% here in the United States—but 7.5% economic growth for 2012 is down from 8%, and it’s been 8% forever. The markets went kind of nuts, as if this is a big deal and it shows China is slowing.

What I can’t really put together to make any sense out of this is, everybody I know if you talk to them about Chinese economic numbers in any other context, they all say the numbers are cooked, they can’t be believed, there is no reality to them. So, why, if we think that way about these numbers, are we taking this change so seriously, as if it were a reflection of some kind of a reality?

I think we need to look at this number for what it is, and what it is is a marker and it is to tell people—not mostly international people, but to tell its own people and its own local leaders a message. The message is, we would be OK if growth came in a little lower if you work to try to rebalance the Chinese economy.

This is a big problem. You’ve got lots and lots of party members in places like the Mayor of Uhland and things like that, who all know and have been taught for decades that their movement up the ladder—their promotion—depends on generating lots and lots of growth.

In recent years, you’ve had the Beijing government, the central government, saying to them, "Well, we really don’t want to keep growing the same way we’ve been growing, and we don’t want to just keep exporting and building more highways to nowhere. What we’d like to do is to try to rebalance the economy toward more consumer growth."

China has one of the lowest contributions from its consumer sector to its GDP of any place in the world among sort of developed or developing nations. Way lower than Brazil. Certainly, it’s half of what it is in the United States, not even half.

But telling people you want them to change the way the economy works while they still believe that they’re going to be held to an 8% growth standard is really hard. So I think this is a message that says hey, we’re serious enough about this so that if you missed your targets, it wouldn’t be a big deal…and in fact we’re going to lower the public target, if you will, to give you a little more room.

Now, everyone knows this, again, which is another reason why I can’t understand why this is so big of a deal. Everyone knows that China always beats its targets. I mean the last time it didn’t happen was in 1997, when you had the Asian currency shock. Given enough warning, they always beat their targets.

So what we’ve got here, again, is something that’s really not intended for a global financial audience. It really doesn’t necessarily have any global financial meaning. It’s important internally, and it’s important for China’s future and the global future if you believe that it’s essential that China spend more on its consumer sector and Chinese consumers buy more in the global market.

But in terms of being an actual reflection of China’s growth rate in 2012? Well, hogwash.

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