The High GDP Growth Targets Set by the Chinese Communist Party Actually Worsened Deflation

At the Two Sessions, the Chinese Communist Party (CCP) lowered its GDP growth target to a range of 4.5% to 5% for the first time and dropped specific growth targets in its new five-year plan. This shift is essentially a limited compromise on deflationary pressures, whereas the previous blind pursuit of high GDP growth was actually the main culprit exacerbating China's current deflation.

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Throughout the Two Sessions, the most eye-catching news at present should be that the CCP has lowered its GDP growth rate. In previous years, the CCP's requirement for GDP growth was always quite rigid, fixed firmly at 5%. This year, however, the CCP suddenly lowered the GDP growth rate from 5% to a range of 4.5% to 5%, breaking the 5% bottom line. This is also the first time since China adopted GDP as the primary indicator of China's economic growth in 1991. In the CCP's new five-year plan, specific GDP growth targets for the next five years will no longer be established.

Instead, the wording for the GDP growth target for the next five years has been changed to maintaining it within a reasonable range and setting annual targets as appropriate. The era when the previous kind of GDP growth rate was the primary task of the Chinese government can, to a certain extent, be said to have passed.

Of course, this shift has been whitewashed by the CCP as a transition from rapid development to high-quality development. But this is essentially a limited compromise by the CCP, or rather Xi Jinping, with reality. And what is the specific compromise? It is a compromise with deflationary pressure. Xi Jinping turned a blind eye to the issues previously raised by Yellen during her visit to China and the International Monetary Fund that China's excessive reliance on exports could lead to deflation. Xi Jinping even regarded these foreign suggestions as attempts to suppress China's economic development through such economic theories, unwilling to see China's economy develop well. Of course, Xi Jinping thinking this is very likely also because Xi Jinping's economic literacy is too low. After all, Xi Jinping has even uttered the classic remark of what is so bad about deflation, showing that Xi Jinping's cognition is even inferior to that of ordinary people.

However, having experienced a period of severe beatings, Xi Jinping has now finally begun to recognize the hazards of deflation and the unsustainability of China's economic development under deflation. This lowering of the GDP growth rate is a typical manifestation of backing down on deflation. Why say this? Because the GDP growth rate is actually completely linked to the degree of deflation, and to a certain extent, it can be said that China's current demand for high GDP growth has exacerbated deflation and become the culprit behind it.