Reasonable range for economy

Keeping inflation under control and a moderate growth momentum will ensure stable employment and enable structural readjustment

'As the economic performance remained within the proper range, we concentrated our efforts on improving the growth model and making structural adjustments by unswervingly following the underlying principles of our macro-control policy. This enhanced public confidence in the market and kept expectations stable," Premier Li Keqiang said in this year's Government Work Report approved by legislators on Thursday.

The "proper range" means the economy performing within the lower and upper limits set by the government last year to ensure employment does not fall below the prescribed minimum level and that inflation does not rise above the projected level.

According to this requirement, the speed of China's economic development should be between 7 to 9 percent annually, so 2013 was a challenging year for the government as the country adjusted to a slower pace of growth after being used to high economic growth for many years.

Li set the main targets for China's economic and social development this year as an increase of around 7.5 percent in GDP growth and a consumer price index of less than 3.5 percent. Such "reasonable" targets will allow the government to keep its macroeconomic policy generally stable, and it can focus on shifting the growth model and adjusting the economic structure in order to tap the country's economic development potential as much as possible.

At the same time, the government will prepare some policies in case the economy performs outside the proper range.

Such macro-control measures can both safeguard a market-oriented economy's basic principle and raise the market potential, and we can better understand the central government's policy if we look at Li's previous references to the "proper range".

Last July, Li hosted a forum in the Guangxi Zhuang autonomous region during which he pointed out that macro-control should stand in the present and see from the future. Moreover, in the same month, he presided over another forum in Beijing, during which he indicated that, certain fluctuations in the economic operation are normal according to both domestic and foreign experiences, so the main purpose of macro-control is to avoid sharp fluctuations in economic growth and to maintain economic performance within the set range.

In addition, in September 2013, when Li delivered a speech at the opening ceremony of the seventh Annual Meeting of the New Champions, also known as the Summer Davos Forum, he said: "We have set a reasonable range of economic performance with a lower limit designed to ensure steady growth and job creation and an upper limit which is meant to avert inflation. These limits are also seen as benchmarks for anticipatory regulation measures. We have also developed a macro policy framework in keeping with the reasonable range of economic performance."

From these remarks we can see there is an explicit macro-control policy framework to maintain this proper range. To be more specific, we can expect adjustments of policy to keep within the upper and lower limits set by the government.

So when the economy approaches the lower limit, the government's macro policy will be adjusted to promote steady growth, while the focus will be on avoiding inflation when the economy approaches the upper limit. Steady growth provides a reasonable operating range for structural readjustment, while shifting the growth model will ensure the economy's long-term stable growth.

Such targeted upper and lower limits are not permanently set in stone, they are aimed at maintaining stable growth and providing reasonable expectations for the market and society.

However, China is still a developing country and development is the key to solving many issues in the country, so we must hold fast to economic construction and maintain a reasonable economic growth rate. The GDP growth target of 7.5 percent considers the development needs of the country and is linked to the goals of building a comprehensive well-off society in the future and optimizing the economic structure.

At heart it aims to maintain the employment level, which is one of the important indexes to measure the economic operation and verify the stability of the economy. The pressure test of the global financial crisis in 2008 and 2009 showed that when GDP growth declined to less than 7 percent, there were problems in the job market. So the lower limit of 7.5 percent growth rate is actually set to ensure stability in employment.

However, with the deepening of economic restructuring and the development of the service industry, the absorptive capacity of the job market will gradually strengthen, so even if the GDP growth rate is lower than the 7.5 percent target, the employment level can still be guaranteed.

To sum up, in order to realize the goal of steady growth, it is important to keep a reasonable economic growth rate, so the government's "reasonable range" is just like an instrument panel on the economic locomotive. Without a certain speed, we will have no material basis for creating more jobs, increasing incomes and improving people's livelihoods, not to mention raising the quality of economic growth.

Some people believe even slower economic growth will be good for pushing forward the necessary structural adjustment of the economy, but in reality, it is not a case of the lower the growth rate the better. Once the economy slows through inertia, the lack of confidence in an economic upturn will form a vicious circle, whereby not only will restructuring not be effectively promoted, but the economic fundamentals will be harmed to such an extent it will be difficult and more costly to restart the economy.

Therefore, we should neither blindly stimulate the economy, nor let the economy slow beyond the reasonable range. Only by better understanding the reasons behind the range and the national economic strategy of steady growth, can suitable policies and measures be applied to provide strong support for economic restructuring and its healthy and sustainable development.