Chinese Premier Li Keqiang recently suggested a lower growth target for the nation, revising the previous 7.5% figure down to 7% percent. Compared to the growth rates of developed nations, that might not seem too big of a deal. “Its still 7%!” some might think.
Nonetheless, the downward revision arrives on the heels of a number of substantive issues for China’s economy. Slowing growth on the heels of a long investment period can lead to capacity utilization issues and deflationary pressures. Indeed, Li took a stern tone in outlining the current situation: “The difficulties we are to encounter in the year ahead may be even more formidable than those of last year. China’s economic growth model remains inefficient: our capacity for innovation is insufficient, overcapacity is a pronounced problem, and the foundation of agriculture is weak.” That said, Li’s firm critique could temper unreasonable expectations. It also builds credibility – if only marginally – in government economic reporting and its commitment to real growth in the future. China needs real structural change at the moment – not just aggressive, blind investment.