Shanghai drops GDP targets

Shift a sign of deepening reform amid slower growth

Shanghai has abandoned its GDP growth targets to emphasize the quality and efficiency of the economy, a move experts believe reflects a more realistic approach to economic growth and one likely to be adopted by other regions in the future.

The city will continue to optimize the economic structure and revise its growth model from an investment-driven to an innovation-driven one, Shanghai mayor Yang Xiong said in the government work report at the annual meeting of the municipal legislature on Sunday.

Experts said the removal of the growth targets, once a key gauge of the city's economic development plan, shows that local governments in China have begun to abandon the old practice of chasing numbers, against a backdrop of a slower national economic growth.

"The removal is a good sign as it shows China's coastal region has made significant headway in moving toward a more efficient model that relies less on investment and exports and more on domestic consumption," Zhang Liqun, a research fellow at the Development Research Center of the State Council, a Beijing-based government think tank, told the Global Times Sunday.

Shanghai's GDP hit 2.36 trillion yuan ($378.3 billion) in 2014, an increase of 7 percentage points from 2013, data from the local statistics bureau showed on Friday. The figure, however, falls short of the target of 7.5 percent growth projected for the year.

"For Shanghai, the GDP figures fail to reflect the city's actual economic performance, such as soundness of its enterprises, fiscal income, employment level, and risks faced by banks," Zhang explained.

Xu Hongcai, the director of the Department of Information under the China Center for International Economic Exchanges, said the removal of GDP targets is also one step closer to global practices, as very few countries set GDP growth targets.

Metrics such as employment and inflation are more commonly used worldwide, Xu told the Global Times on Sunday.

"Shanghai has a dominant service industry. This means that it is not likely to achieve a GDP growth rate similar to the old days when hefty investment in heavy industries drove the GDP upward," Xu said, noting that the services sector is less capable of attracting investment.

Shanghai is the first Chinese city to drop its GDP growth targets in its annual government work report so far. Other provinces and cities, such as Zhejiang Province and Beijing, continued to provide their growth targets for 2015.

"What Shanghai did could set up an example for other provinces and municipalities, as the top leadership has added environmental protection and local debt management into the metrics that gauge local officials' performance. And Shanghai has set an example for other parts of China," Zhu Lixu, a Shanghai-based analyst from Xiangcai Securities, told the Global Times.

Local governments in China had accumulated a debt of 17.9 trillion yuan as of June 2013, up 67 percent from the end of 2010, official data shows.

"It's hard to predict when another city will follow suit, but I think roughly half of the provinces and municipalities will end the practice of setting GDP growth targets within the next 3 years," Zhu said.

Other analysts believe it will still take some time before other regions reach Shanghai's status.

"For many provinces in central and western China, it is still necessary to provide GDP growth targets to boost their economy," Xu said.

Perhaps the country will still have to set GDP growth targets for 2015 in its government work report, Xu noted.

China's GDP expanded by 7.4 percent in 2014, down from 7.7 percent in 2013, the slowest since 1991, data from the National Bureau of Statistics showed Tuesday.

At the provincial level, six of seven provinces that have announced GDP data have missed their respective GDP growth targets for 2014, with the exception of Southwest China's Tibet Autonomous Region.

A more diversified basket of metrics will gradually replace the traditional GDP figure, and these metrics are geared toward improving the people's livelihood and happiness level, Xu further noted.

"However, GDP growth will never be overlooked, because it provides an indication of economic performance," Xu noted.