Mr Hu gave a warning at a meeting of the Politburo that in the coming period China would have to confront the effects of the international financial crisis. Stating that the economic situation was a test of the Communist Party's ability to govern.
Growth has slowed to 9% and it is predicated to drop to 7% or 8% next year.
There is a widespread belief in China that growth needs to stay above 7% in order for social stability to be maintained. And they have taken action to do so.
This past week the central bank carried out the biggest cut in interest rates in more than a decade. And earlier this month, the government announced a stimulus package of $586bn (£380bn). This is enough, the Communist Party will hope, to get this country through the next year or two.
Wow. China is worried about their growth rate falling below 7%. Even superstitious about it! And they haven't even been doing that well for that long! That is a sign of one rich country right there.
3 comments:
Clearly China is aware of the importance of compounding in economic growth rate. Paul Romer discussed this in his talk to explain why a small change in growth rates matters. In order to catch up with the most advanced economies in the world in the shortest time as possible, China has to retain its high average economic growth rate. If it allows its growth rate to slip, that means many years lost in this catch up process.
I think a 7% GDP growth in China Versus a 7% GDP growth in the U.S are two different things. China is still a less efficient economy which much untapped resources than the U.S economy. China is also at a less developed state than the U.S therefore it is easier for them to grow faster as seen in the catch up effect of countries that are starting at a lower level of development. So even figures like GDP growth rate can not be taken as absolut values, but comparatively.
I agree with the comment above, China and US are not on the same level yet, hence GDP growth rates don't mean much when it comes to comparison. U.S certainly has reached some heights while China is still growing. We'll have to wait to see if China will be able to maintain their growth rates.
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