BEIJING, China (AFP) — China yesterday sent its clearest signal yet that the world’s second-largest economy would lower its growth targets, with President Xi Jinping saying annual expansion of only 6.5 per cent would be enough to meet its goals.

Xi’s comments came as the ruling Communist party issued guidelines for its next five-year plan, a release carefully watched by global investors spooked by the country’s economic slowdown.

The documents, whose issue followed a leadership conclave last week, did not include a numerical growth target.

China’s decades-long boom has given it a crucial role in the world economy, driving demand for commodities and supplying manufactured goods itself. But now growth is sputtering, with global consequences.

Xi said annual expansion should be no less than 6.5 per cent in 2016-2020 if the country is to double GDP and incomes compared to 2010 levels by the end of the decade.

The target is part of achieving what the Communist Party calls a “moderately prosperous society” in time for the 100th anniversary of its foundation.

“In the next five years, China’s development should not just be focused on growth pace, but also growth volume, and, more importantly, growth quality,” Xinhua quoted Xi as saying.

The news agency described the 6.5 per cent figure as “China’s bottom line” for the period.

The comments are the clearest indication yet that Beijing will reduce its target growth rate from the current “around seven per cent”, after expansion slowed last quarter to its lowest pace in six years.

Some economists say the current figure is unattainable going forwards, and trying to achieve it risks derailing painful but necessary market reforms.

China has faced economic turbulence in recent months as it tries to transition its economy from years of super-charged growth to a more modest pace it has dubbed the “new normal”.

Botched stock exchange interventions and a sudden currency devaluation have rattled confidence in the leadership, whose legitimacy rests on maintaining an aura of economic infallibility.

Asked about a 6.5 per cent growth target, Xu Shaoshi, chairman of the National Development and Reform Commission, China’s top planning body, said the ruling party had decided to “maintain medium to high-speed economic growth during the 13th five-year plan” to meet the doubling target.

But he added: “Of course, speed is not the only thing we care about. Actually we are more concerned about indicators such as employment, residents’ income and prices.”

Structural problems

An official expansion target of “about” 7.5 per cent was set for last year.

China has not missed its mark since 1998, during the Asian economic crisis. But Premier Li Keqiang, who oversees the economy, has repeatedly dismissed concerns about undershooting the benchmark.

Li has instead emphasised the importance of indicators such as job creation — a key factor in supporting consumer confidence.

Beijing’s fixation on achieving its GDP targets has led it to focus on growth at all costs, experts say, causing it to delay key structural reforms and ignore the effects of dependence on heavy industry powered by cheap but dirty coal.

The country’s 1.37 billion people have become increasingly angered by regular bouts of choking pollution, and administrators’ efforts to fix the economy’s structural issues have been suffocated by constrictive growth targets.

“The 6.5 per cent growth target is achievable as per capita income is still low in China and there’s still much potential for growth,” Liu Ligang, chief economist for Greater China for ANZ Banking Group, told AFP.

“But structural problems will pose a difficulty for China’s growth, including the heavy debt of corporations and local governments.”

Tight restrictions

The Five Year Plan is China’s 13th since the foundation of the People’s Republic in 1949, and while the documents recall the planned economy of the past, they still provide important signals to guide the massive bureaucracy.

As part of the recommendations, the ruling party said last week that the controversial decades-old one-child policy would be dropped, and all couples allowed two offspring.

The guidelines issued yesterday called for full convertibility of China’s yuan currency to be sought in an “orderly” way from 2016-2020, without making clear whether it would be achieved during the period.

The pledge came ahead of an impending decision by the International Monetary Fund on whether to include the yuan in its internal “special drawing rights” reserve currency basket.

China wants to promote the unit as a global reserve currency alongside the dollar, an ambition that depends on its willingness and ability to loosen tight restrictions on its trade.

The document pledged to further open up sectors largely monopolised by the state, including energy and telecommunications, but gave no details.

The ruling party has pledged to let the market play a greater role in the economy, but a recent plan on state enterprise reform stopped short of privatisation.