China must continue prioritizing GDP growth, at least through 2025-30, says Wang Yong
Deputy Dean of PKU New Structural Economics Institute said China should continue to set binding GDP growth targets during 2025-30, and maintain GDP growth as a core KPI for local officials.
Many attribute China's current challenges, such as "involution" and "overcapacity," to the pressure on local governments to meet GDP growth targets, a system that encourages short-term intensive investment. Consequently, there have been calls to weaken or even abandon GDP-based performance evaluations for local officials, replacing them with other assessment criteria.
But Professor Wang Yong (王勇) begs to differ. In his June 29 article in The Beijing News新京报, titled "On the Importance of Setting GDP Growth Targets for China Today and Recommendations for Promoting Growth," he strongly advocates for the continuation of binding GDP growth targets during the 15th Five-Year Plan period, arguing that GDP growth should remain a core KPI for local officials, at least, over the next five years.
Professor Wang Yong is Deputy Dean of the Institute of New Structural Economics at Peking University. Before joining PKU, he worked at the Department of Economics at Hong Kong University of Science and Technology (HKUST) and the World Bank.
Yong obtained his Ph.D. in Economics from the University of Chicago. His main research fields are Economic Growth, Macro Development, China and India's Economy, and New Structural Economics.
According to Prof. Wang, the key benefit of setting strong, binding GDP growth targets is their role in coordinating the multidimensional goals of high-quality development, preventing "the fallacy of composition," and enhancing policy coherence.
Furthermore, it prevents government officials from losing motivation in what remains the most critical dimension of development, economic growth, and helps sustain business confidence in the market.
He also argues that well-designed, binding GDP growth targets, when accompanied by complementary institutional reforms and performance metrics, will not lead to overcapacity or insufficient consumption.
I've translated his piece as below. Please note that Prof. Wang has not reviewed the English translation.
王勇：论当前我国设定GDP增长目标的重要性与促进增长的建议
Wang Yong: On the Importance of Setting GDP Growth Targets in China and Recommendations for Promoting Growth
Although China's economic outlook remains broadly positive, it undeniably faces serious challenges. On the external front, geopolitical headwinds mean exports are constrained by policy curbs from the United States and its allies, leading to weak external demand; domestically, excess capacity in many industries makes it very hard to absorb total supply through household consumption alone.
Some scholars argue that the root cause of today's industrial overcapacity is that, under assessments tied to local GDP growth targets, local governments chose to ramp up investment in a short period — especially in manufacturing and infrastructure — pushing investment growth too high and aggravating domestic overcapacity.
Hence, many call for weakening or even abandoning GDP-based assessments for local governments and replacing them with other indicators such as consumption growth or the unemployment rate.
This year closes out the 14th Five-Year Plan and is also a decisive year for drafting the 15th Five-Year Plan. How to balance performance assessments at all levels of government, especially whether and how to set a GDP growth target, is a major issue that merits in-depth study.
My stance is clear: Given China's current stage of development, the domestic and international economic landscape, and the country's unique political and economic system, the government should continue to set binding GDP growth rate targets during the 15th Five-Year Plan period, and maintain GDP growth as a core KPI for local officials.
Before detailing why I hold this view, it is necessary to emphasize why we must take GDP growth very seriously.
Why should China take GDP growth seriously?
First, China is still, overall, a middle-income country. In 2024, per-capita GDP was 13,313 USD, below the world average (13,933 USD), ranking 74th globally and less than one-sixth of the United States (85,812 USD). To downplay GDP growth at such a low income level would be premature hubris. High-quality development presupposes development, and the core metric of development is rising income.
If GDP growth is too slow, China will not be able to achieve its long-term 2035 vision or its second centenary goal. More importantly, it would undermine efforts to resolve the country's principal social contradiction—namely, "the growing needs of the people for a better life versus unbalanced and inadequate development." If the overall GDP "pie" stops growing rapidly, then the question of how to divide the pie becomes the main source of tension, threatening social stability and harmony, as well as the prospects for reform and development. The growing social divisions seen in many countries in Europe and North America today are essentially rooted in the conflicts arising from unequal distribution. When overall GDP growth is sluggish, it tends to intensify the sense of despair among vulnerable groups in redistribution.
Second, it is far easier to "hit the brakes" on GDP growth than to "hit the gas." Since the launch of reform and opening-up over four decades ago, China has achieved an average annual GDP growth rate of 9.2%—a miracle by global standards. This remarkable performance has led many in China to mistakenly believe that high growth is easy to achieve, making people less appreciative of the current situation. The reality is that once economic growth slows, inertia sets in, and it becomes exceptionally difficult to boost and sustain higher growth rates again.
Third, if China's GDP growth rate slows and the "pie" does not grow large enough, the country will find itself lacking the strength to handle international geopolitical challenges and safeguard national security. Today, both national defense and economic security require a strong economic foundation. Furthermore, when it comes to forging partnerships with developed countries outside the United States, resisting all-around containment policies from the US, and giving full play to initiatives like the Belt and Road and South-South cooperation, China's own economic strength is the bedrock. If the country's GDP stops expanding at a rapid pace, the number of friends it can rely on worldwide will shrink, and the dream of national rejuvenation will become even harder to realize.
The above explains why GDP growth rate and GDP size matter in themselves. Next, I will focus on why, in terms of assessment mechanisms, it is crucial for China at this stage to set binding GDP growth targets, and why this practice should not be abandoned.
Why set a binding GDP growth target, and what measures can raise GDP?
First and foremost, binding GDP growth targets play a crucial coordinating role among the many goals of high-quality development, helping to avoid the "fallacy of composition" and enhance consistency across different policies. Since the 18th National Congress of the Communist Party of China, the Party Central Committee has recognized the need to move away from an extensive growth model based mainly on heavy input and high pollution, and to shift toward high-quality development guided by the "innovation, green, coordination, openness, and sharing" principles. However, the question of how to ensure a smooth transition to this new model through institutional mechanisms remains. Both market actors and governments at all levels are still "crossing the river by feeling for stones."
In the past decade or so, China's GDP growth rate has shown a clear downward trend. While this is partly due to external factors — such as the slow global recovery after the 2008 international financial crisis, escalating trade and technology restrictions by the US since 2018, and the shock of the COVID-19 pandemic in 2020 — there are also policy missteps on our own side. In particular, there has been a tendency to downplay the importance and necessity of GDP growth targets while simultaneously ramping up governance in areas like environmental protection, real estate, extracurricular education and training, financial security, anti-monopoly efforts, and common prosperity.
While these areas do face real issues in need of better governance, in practice, many regions have taken an overly rigid "red line" approach: if a single target is not met, officials are reprimanded and lose their positions, no matter how much progress they may have made in economic growth or other metrics. The transition from a GDP-centric approach to multidimensional high-quality development is both necessary and unavoidable, but using a Leontief-style assessment — where each department focuses solely on its own targets — has led to coordination failures. For example, environmental authorities may strictly pursue environmental goals regardless of the impact on GDP; anyone suggesting moderation to avoid excessive harm to GDP is labeled as holding outdated "GDP-only" views, which is seen as contrary to new development ideas and the pursuit of high-quality growth.
As a result, departments push forward with their own policy measures, often ignoring the impact on investment, consumption, and employment. Even though government agencies understand the negative effects on GDP growth, because their own departmental targets are prioritized and the importance of GDP growth targets has been weakened, there is a lack of effective policy coordination across departments. This leads to the "fallacy of composition", where actions that seem rational for one target produce negative results in the aggregate, creating significant downward pressure on both employment and GDP growth.
Meanwhile, as these measures collectively worsened insufficient domestic demand, China rolled out macro policies to boost demand, only to have expansionary macro policy offset by tight micro-level governance, leading to policy "inconsistency." Growth slowed too fast, job pressure rose, and deflation risks increased.
Encouragingly, the Central Economic Work Conference in December 2023 stressed "establish before breaking" and improving consistency between economic and non-economic policies. Subsequent major meetings and documents reiterated this, showing full recognition that GDP growth is crucial for cross-goal coordination. Notably, on September 26, 2024 , the Politburo launched a package, especially demand-side measures, to secure the annual 5% growth target, which was ultimately achieved with difficulty.
This underscores that only by fully re-elevating the importance of GDP growth can we better coordinate other high-quality objectives, break "Leontief-style" assessments, and ensure each department calibrates the strength and timing of measures against the growth target, thereby avoiding the "fallacy of composition."
Second, a binding GDP growth target prevents officials from losing sufficient incentives on the most important development dimension — growth. If the indicator is weakened, officials will rationally accept all the "breaking" but lack incentives and energy for the "establishing"; they will avoid reform and enterprise, opting to "lie flat" or at most perform "sit-ups", a perverse incentive that breeds drift and confusion. Precisely because incentive problems became widespread, the central government later emphasized distinguishing "willful rule-breaking" from "well-intentioned but subpar outcomes," calling for lighter penalties on the latter to protect initiative. In practice, however, this line is hard to draw; the key is to strengthen positive incentives rather than over-rely on negative punishments.
Third, excessively downplaying GDP targets will sap business confidence, prompting firms to scale back production and investment, which in turn reduces household incomes. Lower incomes curb consumption, shrinking the domestic market, the crucial engine of growth. Finally, unemployment rises as firms cut costs amid uncertainty and weak demand. Mass job losses hurt livelihoods and trigger social problems, further undermining economic dynamism and stability. In short, abandoning GDP growth targets damages confidence, worsens demand shortfalls, and severely harms growth.
Fourth, a reasonable, binding GDP target, paired with institutional reforms and complementary indicators, need not cause "overcapacity" or "insufficient consumption." Specific suggestions:
While many localities did over-invest for short-term GDP, has the space for effective public investment been fully exhausted? Rigorous research is needed, but my judgment is there remains substantial room—for example, enabling infrastructure for strategic emerging and future industries: intelligent super-computing centers, data centers, new-energy storage and utilization, genomic repositories and high-level bio-labs for the bio-economy, and more. Beyond infrastructure, scaling industries, advancing green transition, and doing R&D all require investment.
Even in traditional sectors and people-facing infrastructure, different regions at different stages need upgrading investment. Public foundational investment in services should also be strengthened, supporting culture and tourism, nature-based tourism, sports and fitness, arts and culture, leisure and entertainment, green and environmental services, and news and media. Through targeted measures, guide localities to invest in line with local comparative advantages rather than herd into mismatched industries, thereby easing "involutionary" competition and low-efficiency investment.
Use GDP targets to press forward institutional reform, especially in service sectors with chronic undersupply. For example, human-capital-related social services (education, healthcare, elder-care) have long faced price and entry controls, leaving demand for high-quality services unmet. Appropriately ease market access for private firms, fully protect their rights and confidence, and avoid ownership-based discrimination. Guard against abrupt, campaign-style shutdowns; unleash private-sector vitality. In real estate, many cities still have strong up-grading demand from small to improved housing; do not impose blanket purchase bans — let reasonable demand be met.
Also, expand openness in services. Moderately relax restrictions on direct service-sector FDI from the EU, Japan, and South Korea. This will intensify competition to raise efficiency at home and strengthen economic ties, creating a more positive environment for China's exports to those markets.
Experience shows that China's unilateral visa-free entry for short-term visitors from many developed countries has boosted inbound tourism and consumption, while also countering misleading, discriminatory narratives abroad, thus improving the cognitive and public-opinion climate for trade and exchange. Here, central-local coordination is essential: use the GDP growth target as a lever to accelerate reforms and marketization.
GDP-target assessments also spur governments to roll out measures to raise domestic consumption, since higher consumption directly boosts GDP. Since late last year, China has announced many demand-support policies, including consumer subsidies, implementing major national strategies and strengthening security capacity in key areas, easing private car-purchase curbs in major cities, and crackdowns on practices harming consumer rights. These are positive for both demand and people's sense of gain.
But more can be done. Tax-system structure should be adjusted as soon as possible to better incentivize governments to promote consumption. Currently, taxes fall mainly on firms and households; even consumption taxes are collected in advance from enterprises, naturally making government more firm-oriented than consumer-oriented. If the tax mix is adjusted so government collects more directly from consumers, fiscal incentives will better align with pro-consumption reforms. In addition, the share of disposable income in per-capita GDP is relatively low; tax reform should raise household disposable income as a share of per-capita GDP .
Accelerate financial reform to lift GDP. The most effective way to raise consumption is to raise stable household income, chiefly by expanding employment; there is also ample room to raise capital income. China's household saving rate remains high, but good investment vehicles are lacking. The Chinese stock market, much like its men's national football team, remains a peculiar case. Over the long term, its development lags far behind China's overall GDP growth. Furthermore, the development of the private venture capital market is significantly behind, which not only hampers the establishment and growth of innovative enterprises but also severely limits the increase in capital income for Chinese residents.
In recent years, the number of unicorn companies in China has noticeably decreased. A major factor contributing to this trend is the over-regulation of the capital market, which is detrimental to the birth and rapid growth of innovative enterprises. In the current state of the real estate market, it is impossible for asset-based income to grow quickly if Chinese residents primarily rely on bank interest. On the other hand, the absence of a Chinese version of Nasdaq has led to a reliance on local government industrial guidance funds for investment. This is not only inefficient but also violates the basic financial principle that equity financing is more beneficial for the development of innovative technology companies. Moreover, this excessive government involvement in market investment decisions, an area in which it is not well-versed, increases the likelihood of using investment strategies to boost GDP. This can lead to unhealthy competition between local governments in areas such as investment attraction, creating a relatively ineffective industrial policy.
Financial reform must be directly driven by the central government to better serve China's industrial upgrading and increase residents' asset-based income. This will improve investment efficiency, enhance resident income, and promote domestic consumption.
Adopt a more proactive, expansionary monetary policy to better support GDP growth. With heavy deflationary pressure and fiscal revenues hit by COVID-19 and sectoral rectification, many localities struggle to pay civil-service wages; some even propose "ensure 6 , strive for 8" (ensure payment for 6 months of wages, strive for 8 months) . In such conditions, monetary policy should play a bigger role — fighting deflation while bolstering demand. Further rate cuts, which raise the opportunity cost of saving, can stimulate consumption, especially for durables and investment.
Moreover, provide targeted credit subsidies to specific sectors and firms—for example, launch special support to relieve and double credit for Chinese entities unfairly sanctioned by the US. In addition, transfer part of central tax revenues as subsidies to hard-pressed households, with particular support for education.
Overall, in tackling current and future growth challenges, local policy toolkits are increasingly constrained. The central government must lead with macro policy and institutional reforms, signaling a strong commitment to growth, livelihoods, and reform, while guiding localities and market actors to remove distortions that suppress growth and unlock both short- and long-term potential.
Are alternative targets more effective than GDP growth?
Some propose replacing GDP targets with consumption growth or the consumption-to-GDP ratio, to better motivate officials to stimulate demand amid weak exports. In earlier years, the unemployment rate was also suggested as a replacement.
As we all know, any single-metric assessment has limits and side effects, often implemented as one-size-fits-all, gamed, or turned into costly formalism. If consumption growth becomes the official target, we must also guard against overly rapid expansion of household consumer credit, which could over-lever households and drive saving too low, hurting capital accumulation and long-term growth. If lowering unemployment replaces GDP, localities might prop up failing firms or deter necessary layoffs of unqualified workers; firms could then hire less, reducing labor-force participation.
Compared with consumption or employment targets, I assume that the GDP growth target is more comprehensive, easier to measure accurately, and has relatively fewer side effects — making it more suitable as the primary assessment metric at this stage. Of course, we can assign weights across targets for a more holistic assessment, while also factoring in other high-quality-development goals. The precise weights deserve further study, but I maintain that GDP should carry the highest weight and be subject to a minimum red-line. ■