China appears set on a testing target for growth in the years ahead. Recent remarks from President Xi Jinping and other leaders suggest 6.5 percent will be the lower threshold for GDP growth in the 13th Five-Year Plan, the blueprint for the economy from 2016 to 2020. That reflects the long-standing objective of doubling the size of 2010 GDP by 2020, seen as critical to achieving a "moderately prosperous society" in time for the 100th anniversary of the founding of the Chinese Communist Party.



Bloomberg Intelligence Economics' analysis of China's potential growth rate suggests 6.5 percent growth in 2020 is attainable, just. That would reflect a slowing contribution from capital accumulation and productivity gains, and a slight drag from labor supply as the workforce shrinks. Projections from the International Monetary Fund put growth in 2020 at 6.3 percent, after a dip to 6 percent in the interim as the economy works through challenges from the rapid buildup of leverage and industrial overcapacity.

If the target is achievable, it is also testing. China faces numerous challenges in the years ahead. Economy-wide debt of more than 230 percent of GDP, real estate construction that is running 2 million units a year ahead of fundamental demand, and a working age population that will shrink more than 10 million in the next five years are all obstacles to sustaining growth around the current

level. Some analysts are forecasting a significantly sharper slowdown, expecting growth in the low single digits by the end of the decade.

China's growth target has implications for the policy mix going forward. It's certainly true, as Premier Li Keqiang has said, that strong growth provides a supportive atmosphere for reform. It's much easier to close down loss-making state-owned enterprises, for example, if the private sector is growing fast enough to generate job opportunities for redundant workers. At the same time, pressure to hit stretching growth targets could also encourage officials to go back to their old play book of credit-fueled investment spending. That's an unsustainable solution.

A second potential pitfall is commitment to a 6.5 percent target could open a widening gap between what the official data say about the growth rate and where cynical market participants perceive it to be. Already in 2015, National Bureau of Statistics data reporting growth close to the 7 percent target has been met with skepticism from some analysts. BI Economics' monthly GDP tracker puts growth at 6.6 percent in the third quarter. Other analysts are more skeptical, with some proxy indexes putting the current growth rate as low as 3 percent.

The risk, then, is that as the government goes all out to double the size of the economy, China's GDP data are increasingly regarded as a political number rather than an unbiased economic measure. That reduces the value of the data as a guide to policy makers, businesses and investors. A step change in transparency by the National Bureau of Statistics — so GDP calculations are replicable from published source data — isn’t part of the 13th Five-Year Plan. Perhaps it should be.