GDP growth not sole criterion for success

Instead of using GDP growth as the sole criterion for success, China is now focusing more on improving the quality of economic growth, President Xi Jinping said in the keynote speech delivered at APEC CEO Summit Indonesia on Oct 7, 2013.

"GDP growth is not the only indicator, we should fundamentally address the issue of growth in China's economy, even if it involves a sacrifice in GDP growth," he added. Economic development should put people first, as well as a coordinated and sustainable development.

There are many limits to using GDP as the sole criterion to measure income and production. More attention should be paid on labor and employment, personal income, social security, eco-efficiency and health.

However, it doesn't mean that assessment of GDP growth should be stopped.

GDP per capita is not a measurement of the standard of living in an economy; however, it is often used as such an indicator, on the rationale that all citizens would benefit from their country's increased economic production. We should reduce the weight of GDP growth, and increase the weight of other indicators that reflect quality and efficiency of economic growth. Currently, development is still crucial for solving all problems in China.

Zhao Changwen, director of the enterprise research institute under the Development Research Center of the State Council, said paying less attention to GDP growth will also help local governments play their roles more effectively.

Major obstacles of GDP-centered assessment include regional protection, governmental intervention and poor oversight. Local government "corporatization" is a common phenomenon in China, which harms their function. GDP is not the sole indicator. It means local government should focus more on public services, market regulation, social management and environmental protection.

In addition, it will help solve other problems, such as overcapacity and local government debt, Zhao said. At present, tackling industrial overcapacity will likely be a top priority for the new Chinese leadership. The core problem is wrong allocation of resources and unreasonable intervention by local governments. There is a high correlation between local government debt and GDP. Local governments under GDP-centered assessment exacerbate overcapacity. To solve the problem of local government debt, GDP centralization should be broken and investment from local governments should be controlled.

Yu Fenghui, a well-known columnist in finance and economics, said GDP growth has been the sole criterion for a long time when assessing local governments. Accordingly, some local governments have been chasing GDP growth at the expense of environmental degradation and waste of land resources, incurring climbing financial risks. Among which, developing the regional economy by borrowing money is the most dangerous one.

The National Audit Office (NAO) estimated local government debt at around 10.7 trillion yuan ($1.64 trillion) by the end of 2010. As the government debt level kept rising, NAO announced a nationwide audit of government debt in July, but the results have yet to be published.

Sharp growth in local government debt has become one of the worst-hidden dangers for the economy. To tackle the local debt increase, the government may need to control investment projects at the risk of slower GDP growth, to ensure banks' lending system remains sound.

President Xi emphasized GDP growth is not the sole criterion for success, calling for reform to be spread to every area of economic and social development. The goal of reform is to satisfy the increasing needs in material and culture, rather than GDP growth.