By Jonathan Cheng 

BEIJING -- By ditching a formal economic growth target for this year, China's leaders are acknowledging continued global uncertainty amid the coronavirus pandemic.

But the move could also mark the beginning of the end for a key performance metric that has long undergirded policy decisions for Chinese government officials.

The world economy is likely to feel the impact as Beijing accelerates its shift away from a decadeslong fixation on achieving a specific, rapid pace of economic expansion to a focus on other goals, though at a slower growth rate. This transition will drag on China's demand for the world's services, finished goods and natural resources.

Premier Li Keqiang said in May that China would forgo this year's annual growth target. Over the course of the past two and a half decades of blistering growth -- including eight years in double digits and 6.1% last year -- the annual target for gross domestic output growth served as an explicit manifestation of the implicit bargain between Beijing and the public: acquiescence on many political and social issues in exchange for rising prosperity.

As growth has tapered off and as public demands for other improvements have grown, Chinese officials have in recent years been expected to fulfill an increasingly wide range of goals, including ensuring social stability, keeping debt in check, eliminating poverty and cleaning up the environment.

But Beijing still demanded regional officials achieve a growth benchmark, which encouraged them to prioritize certain kinds of policies: attracting investment and encouraging real-estate development and infrastructure.

Without a growth target, these officials will, for the first time in decades, be judged by criteria that don't include maximizing growth.

At least for the rest of this year, chief among those new benchmarks will be their ability to keep coronavirus infection counts at or near zero -- a demand that could require restrictions on work, travel and other activities that fuel economic growth.

As Mr. Li himself acknowledged Thursday at a press conference, referring to the tasks of spurring the economy and containing the pandemic: "I'm afraid there's a level of conflict of interest between these two goals."

When six new infections were confirmed recently at a housing complex in the city of Wuhan -- suggesting the coronavirus's possible re-emergence in the pandemic's initial epicenter -- local authorities fired the official in charge of the complex and ordered testing of the city's 11 million people.

Similarly, when several dozen cases were confirmed in China's northeast earlier in May, authorities promptly locked down the area, ordered residents to stay home and replaced officials. One of China's vice premiers hurried over from Beijing to chide local cadres for acting too slowly.

That new incentive structure -- out with the growth target, in with pandemic prevention -- portends a broader shift in the senior leadership's thinking on the centrality of economic growth.

Recently, officials in some underperforming provinces haven't been removed or appeared overly concerned after missing GDP targets for several consecutive years, notes Houze Song, a research fellow at the Chicago-based Paulson Institute's MacroPolo think tank.

"The marginalization of the GDP target seems to be a trend," Mr. Song said. Dropping it for 2020 "makes it more likely that in future years they will abandon the GDP target," he said -- for good.

Beginning with the introduction of a new unemployment survey in 2018, jobs have been a particular focus for China's stability-minded leaders, arguably outweighing the importance of the GDP figure, says Andrew Fennell, lead analyst for Hong Kong and China at Fitch Ratings.

Scrapping the GDP target this year, he said, "is a recognition of realities, but it's also a culmination of changes in the incentive structure."

China's top leader, Xi Jinping, told delegates to China's rubber-stamp legislature earlier in May that, if not for the pandemic, the annual growth target would have been around 6%. But with the pandemic, he said, according to state media reports, "some things are simply beyond our control."

"The global economy is doomed to fall into recession," Mr. Xi was quoted saying. "The focus should not be placed on the GDP growth rate."

In line with the apparent comfort with slower growth, Beijing announced a much milder stimulus effort than the large-scale fiscal and monetary packages that characterized its response to downturns in 2008 and 2015.

Economists say, given the job-creation targets and the fiscal budget deficit, Beijing is implying growth of less than 2% this year.

Of course, growth still matters. The two economic priorities Beijing is touting this year instead of a specific GDP goal -- ensuring employment and eliminating absolute poverty -- depend, to a large degree, on rising output.

"You can't achieve all those things without some level of growth," says Mr. Fennell of Fitch Ratings.

But Mr. Li, the premier, told reporters Thursday that China was less interested in a particular growth rate than in what he called "higher-quality development."

"We believe development still holds the key and is the foundation for resolving all of the problems in China today," he said.

Write to Jonathan Cheng at jonathan.cheng@wsj.com

(END) Dow Jones Newswires

May 31, 2020 10:14 ET (14:14 GMT)

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