GDP and sustainable growth

In delivering the government work report at the National People's Congress, Premier Li Keqiang vowed to push ahead with the reforms outlined at the Third Plenum last year. There are strong signals on continuing financial reforms, including the mention of the launch of a deposit insurance scheme this year, on tax reforms and on further reduction of red tape. But Mr Li nonetheless left key questions unanswered. Most notable is the issue of how the government will resolve the tension between its promise to steer the economy onto a more sustainable path and its lingering desire to sustain rapid growth of GDP. Mr Li promised to "defuse" local government debt risks, slow investment and reduce overcapacity in the industry while at the same time keep GDP growth broadly unchanged.

The answer to how the government thinks this circle can be squared may lie in the issue of how much flexibility policymakers see in the target for GDP growth. The target this year is described as "about 7.5 percent". Mr Li also talked about keeping GDP growth within "a range", with its lower bound being whatever growth was needed to sustain stable employment. Those of us who believe that the government needs to embrace structural reform sooner rather than later will be hoping that this apparent flexibility means that policymakers will keep their focus on structural issues even if growth dips below 7.5 percent.

The author is chief Asia economist at Capital Economics, a London-based independent macroeconomic research consultancy.