Chinese Premier Wen Jiabao announced on Monday that the country will be reducing its targeted GDP for 2012 in response to changing social and economic factors in China and around the world.
The premier said that China will aim for a 7.5 percent GDP growth rate in 2012, as opposed to 8 percent in 2011. Expansion is set to remain at this rate through 2015, well after he and President Hu Jintao step down from office.
But why would a county like China, which recently surpassed Japan to become the world’s second largest economy, want to lower its growth rate? The answer to that comes from several dynamic worldwide developments spanning the last decade or so.
First and foremost, China has relied enormously on exporting domestically produced goods to maintain its GDP growth. However, in light of the recent debt crisis and economic recession that have slammed Europe and North America, countries are importing fewer goods from China.
In addition, there is downward pressure from a substantial demographic shift occurring within the Chinese labor pool. The former 8 percent growth rate was implemented to create 10 million new jobs a year for the young Chinese population entering the work force. However, as this group ages and the country’s strict one-child rule takes effect, China now needs to create only half as many jobs a year.
The greater economic trend manifested in China’s lowered target GDP is that the country is easing off its heavy reliance on exports to foreign countries. Following the financial collapse of 2008 and subsequent anemic world economy, China has become aware of this very scary form of dependence, and now seeks to address it.