Interpreting the "balanced scorecard" of Chinese government

By Harald Buchmann

GDP is not a suitable indicator to lead a country. This is a criticism often heard about the Chinese government’s economic planning. The irony is that probably no-one would agree more to that statement than the Chinese government themselves. If we look at the full Government Work Report delivered by Chinese premier Li Keqiang during the opening session of the People’s Congress of China, we find that for example “GDP” is mentioned only 6 times, compared to “internet” (12 times), or “pollution” (also 12 times). But important is not just how often, but also in which context GDP is mentioned.

The graphic shows part of highlights of the government work report delivered at the first session of the 13th National People's Congress (NPC) in Beijing, China, March 5, 2018.[Photo: Xinhua]

The full “government’s work report” is structured in three main parts: 

1. Review of the last five years

2. Overall requirements for development of economy and society in 2018, as well as policy (frame of) reference

3. Proposals for government work in 2018

Four out of six times GDP is mentioned in the review part, and while I stated GDP shouldn’t be used as lever to try to guide the economy, it is a valuable indicator ex post, to see how the economy actually did fare.

1. GDP grew from 54 to 82.7tn RMB (8.5tn to 13tn US$)

2. Energy and water consumption per unit of GDP dropped by 20%

3. GDP growth in 2017 was 6.9%

4. Education spending continuously exceeded 4% of GDP

The other two mentions of GDP are in the second part, in one paragraph that reads in full: 

The main goals for development in 2018 are GDP growth of around 6.5%, consumer prices growth around 3%, more than 11 million newly created jobs, unemployment rate within 5.5%, registered unemployed rate within 4.5%, citizen’s income growth basically in line with economic growth, stable positive development of imports and exports, balance of payments in equilibrium, energy consumption per unit of GDP reduced by 3%, further reduction of main pollutants emissions, qualitative advancements in supply-side reform, macro-leverage to remain stable, systematic and effective avoidance of risks.

It should be very clear, that GDP is but one indicator on what in business is called a “balanced scorecard” which includes aggregated target values for economic growth (analogous to sales targets for a company), wealth and poverty (i.e. income growth consumer prices, unemployment etc.), environment, economic structure, and financial situation of China. These five dimensions are measured using a range of indicators each, which are then distributed to the Chinese provinces, and broken down in very specific targets for all parts of government at all levels of China.

It should also be clear, that all indicators or no goal by themselves. They are target values in order to achieve a goal: the section’s title “economic and societal development’s overall requirements” emphasizes this point. So what are the goals then, for which GDP growth and the other indicators are a means? The goals come from the strategic long term planning of the Communist Party of China, i.e. strategies with lofty names like the Two 100 Year Plans, the Chinese Dream of the Great Rejuvenation of the Chinese Peoples, etc. These names may sound a bit too much for Western audiences, but the content is actually quite down-to-earth, and very legitimate for any developing country: moderate prosperity for all Chinese, an environment-friendly, beautiful, healthy country, a democratic, harmonious, just, equal and free society ruled by law. 

These in some cases still far away goals are broken down in periods of development, a new one of which has just recently started. Within each period of development, the goals are operationalized into specific targets in the Five-Year-Plans. In order to achieve those 5 year targets, every year certain steps must be reached. This is where the above mentioned requirements for development originate.

To sum it up, the Chinese government is very clear that GDP cannot serve as a lever to guide the economy, let alone the development of a country. Most of the Government Work Report outlines in some detail the specific measures, how GDP growth will be achieved, as well as ways to achieve other central targets for 2018. The sole focus on economic growth has been gradually abandoned over the last 15 or more years, as other aspects of society have become more and more pressing. Nowadays the targets include environment, wealth gap, unemployment and other central aspects of common people’s lives. Problems persist and are various, in China as in any country. But at least they do get addressed by the government as they become pressing. This unfortunately is not the case in many other countries, especially other developing countries.

(Harald Buchmann is a Swiss economic analyst and business advisor based in Beijing)