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Nikkei Editorial

Don't ignore Xi's warning about black swans and gray rhinos

China's high-growth days are over; Stable growth must be the new priority

Chinese President Xi Jinping would do well to unlock the potential of the private sector. (Photo by Taro Yokosawa)

China's just-ended National People's Congress, its annual meeting of parliament, was held against the backdrop of the country's ongoing economic turbulence. How to cope with slowing growth was a main theme at the event. Regrettably, discussions largely steered clear of harsh realities, presumably because political stability was deemed more important.

The leadership maintains that China's economy is, on the whole, stable. But the data does not bear that out. New car sales in January and February tumbled 14.9%, for the eighth consecutive year-on-year contraction. Production and consumption remain stagnant, and there are concerns about employment.

Premier Li Keqiang said the government will cut the value-added tax in April and slash social insurance premiums in May. To address the credit contraction, Li said big state-owned banks will increase lending to small and midsize companies as well as to mom and pop businesses by more than 30%.

Li also said the government will not resort to near-sighted stimulus measures, as that could create new risks, but that Beijing will increase infrastructure investment. In other words, China will tread a narrow path between economic stimulus and fiscal discipline.

China's corporate debt as a ratio of gross domestic product is larger than Japan's was during the go-go years of its bubble economy. If China's economic bubble collapses and pulls down property prices, which have remained on a high plateau, the global economy will take a big hit.

Speaking to senior officials of the Chinese Communist Party early this year, President Xi Jinping stressed the need for averting serious risks, warning of "black swans" and "gray rhinos." A black swan is an unforeseen economic event, while a gray rhino is a highly probable but neglected threat. That the Chinese leader would raise such concerns should not be taken lightly.

China needs to recognize that its high-growth days -- set off by its accession to the World Trade Organization in 2001 -- are over. The time has come to pursue truly stable growth.

China took the practical step of lowering its economic growth target for 2019 to 6.0%-6.5%, from last year's target of about 6.5%. But given how the government requires relevant entities to hit specific targets, the possibility that economic reports may be padded -- as has happened before -- means that any official figures China releases are likely to be viewed with skepticism.

China should break with its old ways and make a top priority of earnestly discussing what growth levels would best bring stability to its citizens. The country has benefited immensely from the market economy and free trade, so it should work on ways to eliminate -- in a flexible manner -- the remnants of its planned economy.

One area that needs addressing is Beijing's push to reform state-owned enterprises, which has made little headway. Xi's call for making them "stronger, better and bigger" has only helped them swell and hampered the healthy growth of private businesses.

The stable growth that the government so clearly wants requires a policy shift that places more importance on private companies. Drawing out the full potential of these companies is key to ensuring greater job security.

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