China, the world's second largest economy, lowered its GDP growth target to 7.5 percent this year, marking the first time the figure has dropped below 8 percent in the past eight years. China aims to increase its GDP by 7.5 percent, boost the volume of total exports and imports by roughly 10 percent, and hold consumer price index (CPI) increases to around 4 percent, Chinese Premier Wen Jiabao said in his "Report on the Work of the Government" presented to the National People's Congress on Monday. The slower growth rate is in line with global expectations and reveals China's awareness of the need to rebalance its economy.
The country currently relies heavily on exports and investment for its economic development, but has begun to find such an economic model no longer sustainable due to surging labor costs and a lack of innovation (which leads to low investment returns). " settling a slightly slower GDP growth rate, we hope to make it fit with targets in the 12th Five-year Plan, and to guide people in all sectors to focus their work on accelerating the transformation of the pattern of economic development and making economic development more sustainable and efficient, so as to achieve higher-level, higher-quality development over a longer period of time," Wen stressed in his speech. China's 12th Five-year Plan released one year ago aimed at an average annual growth rate of 7 percent between 2011 and 2015, a 0.5 percent correction down from the development goal set in the country's 11th Five-year Plan.
A recent report named "China 2030" - prepared by the World Bank and the Development Research Center under the Chinese State Council - said China has reached a development "turning point" and should use the right timing to conduct deep reforms. "China could postpone reforms and risk the possibility of an economic crisis in the future or it could implement reforms proactively," says the report. Beijing's acceptance of a lower growth target is also interpreted as a measure to manage international expectations. While the debt-ridden Euro zone still expects China's rescue in cash, and the United States in an election year continues pushing the RMB value to rise, China's own headwinds may give the country less external pressure and offer a breathing space for domestic exporters.