Stephen Roach: Is This End Of Chinese Central Planning?

Tyler Durden's picture

Authored by Stephen Roach (author of Unbalanced: The Codependency of America and China), via The Jewish Business News,

“Isn’t it now time for China to abandon the concept of a growth target?”

That was the question I asked Chinese Finance Minister Lou Jiwei this week at the 15th annual China Development Forum, which brings together top Chinese officials and an international delegation of academics, leaders of multilateral organizations, and business executives. Having attended the CDF since former Premier Zhu Rongji initiated it in 2000, I can attest to its role as one of China’s most important platforms for debate. Zhu welcomed the exchange of views at the Forum as a true intellectual test for China’s reformers.

It was in that spirit that I posed my question to Lou, whom I have known since the late 1990’s. In that period, he has been Deputy Minister of Finance, founding Chairman of China’s sovereign wealth fund, China Investment Corporation, and now Minister of Finance. I have always found him to be direct, intellectually curious, a first-rate analytical thinker, and a forward-looking advocate of market-based reforms. He is cut from the same cloth as his mentor, Zhu.

My question was set in the context of the new thrust of Chinese reforms announced at last November’s Third Plenum of the 18th Central Committee of the Chinese Communist Party, which emphasized the “decisive role” of market forces in shaping the next phase of China’s economic development.

I prefaced my question by underscoring the inherent contradiction between a target and a forecast in framing China’s major economic objectives. I argued that the former embodied the obsolete straitjacket of central planning, while the latter was far more consistent with market-based outcomes. A target perpetuates the image of the all-powerful state-directed Chinese growth machine – a government that will essentially stop at nothing to hit a predetermined number.

While it may seem like splitting hairs, continuing to frame the economic goal as a target sends a message of determined and explicit guidance that now seems at odds with the government’s market-oriented intentions. Wouldn’t dropping the concept send a far more powerful message? Isn’t it time for China to let go of the last vestiges of its centrally planned past?

Lou’s response: “Good question.”

China, he went on, is in fact moving away from its once single-minded emphasis on growth targeting. The government now stresses three macroeconomic goals – job creation, price stability, and GDP growth. And, as evidenced by the annual “work report” that the premier recently submitted to China’s National People’s Congress, the current emphasis is in that order, with GDP growth at the bottom of the list.

This gives China and its policymakers considerable room for maneuver in coping with the current growth slowdown. Unlike most Western observers, who are fixated on the slightest deviation from the official growth target, Chinese officials are actually far more open-minded. They care less about GDP growth per se and more about the labor content of the gains in output.

This is particularly relevant in light of the important threshold that has now been reached by the structural transformation of the Chinese economy – the long-awaited shift to a services-led growth dynamic. Services, which now account for the largest share of the economy, require close to 30% more jobs per unit of output than the manufacturing and construction sectors combined. In an increasingly services-led, labor-intensive economy, China’s economic managers can afford to be more relaxed about a GDP slowdown.

Last year was a case in point. At the start of 2013, the government announced that it was targeting ten million new urban jobs. In fact, the economy added 13.1 million workers – even though GDP expanded by “only” 7.7%. In other words, if China can hit its employment goal with 7.5% GDP growth, there is no reason for its policymakers to panic and roll out the heavy counter-cyclical artillery. That, in fact, was pretty much the message conveyed by a broad cross-section of senior officials at this year’s CDF: Slowdown, yes; major policy response, no.

Zhou Xiaochuan, the head of the People’s Bank of China, was just as emphatic on this point. The PBOC, he argued, does not pursue a single target. Instead, it frames monetary policy in accordance with what he called a “multi-objective function” comprised of goals for price stability, employment, GDP growth, and the external balance-of-payments – the latter factor added to recognize the PBOC’s authority over currency policy.

The trick, Zhou stressed, is to assign weights to each of the four goals in the multi-objective policy function. He conceded that the weighting problem has now been seriously complicated by the new need to pay greater attention to financial stability.

All of this paints China with a very different brush than was used during the first 30 years of its growth miracle. Since Deng Xiaoping’s reforms of the early 1980’s, less and less attention has been paid to the numerical targets of central planning. The State Planning Commission evolved into the National Development and Reform Commission (NDRC) – though it is still housed in the same building on Yuetan Street in Beijing. And, over time, economic managers succeeded in drastically curtailing sector-by-sector Soviet-style planning. But there was still a plan and an aggregate growth target – and an all-powerful NDRC hanging on to the levers of control.

Those days are now over. A new “leading committee” on reforms is marginalizing the NDRC, and China’s most senior fiscal and monetary policymakers – Lou Jiwei and Zhou Xiaochuan – are close to taking the final step in the long journey to a market-based economy. Their shared interpretation of flexible growth targeting puts them basically in the same camp as policymakers in most of the developed world. The plan is now a goal-setting exercise. From now on, fluctuations in the Chinese economy, and the policy responses that those fluctuations imply, need to be considered in that vein.

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LetThemEatRand's picture

China is not a free country, nor is America.  Both countries are ruled by politicians whose goal is to use the country for their own personal gain.  In America, the politicians are pawns of bankers and oligarchs with the true wealth who derive most of the benefit, but the politicians are happy to be stooges to make a few million here and there.  In China, there is no middle-man and the politicians are themselves the oligarchs who control the economy for their own direct gain.  The Chinese government is worried only about one thing -- keeping the economy just good enough to prevent wholesale revolution, and to keep their pockets well lined.  Same with America.  Both countries have a Plan B which involves use of the militarized police and actual military against their citizens if necessary.

LetThemEatRand's picture

No doubt in my mind.  For years they have been not-so-quietly culling the ranks of the police and military to remove the good guys, replacing them with an ever increasing number of thugs.  Any given week there is another story about cops shooting a dog and brutalizing people while busting into the wrong house, or simply shooting people who don't pose any threat but who disobey their orders.   They arrest people who film them -- knowing they will later be released because there is no basis for the arrest -- for obvious reasons.  And they view the Constitution as an annoying obstacle that can and should be avoided if there is a plausible way to do so.  

kliguy38's picture

u are very perceptive mr rand

NoDebt's picture

Have family in the military.  We're not there yet.  But we get closer to that point every day.  I've been told that the Obama aministration's paranoia of the military being unwilling to follow his orders (though they always have) pushed that process into overdrive.  They're in wholesale "houscleaning" mode right now under the new SecDef.  Only government-controlled stooges being promoted, everyone else shown the door.


Ban KKiller's picture

Are you talking about New Mexico cops? We shoot homeless people in the back here.  I used to wonder how Nazis were recruited. Plenty of pigs to shoot is a message.

You are correct. 

effendi's picture

It isn't hard to recruit people to do horrible things.

Based on statistics there are at least 150 million American adults who would kill people if directed by those in authority.

If you don't believe me then go look at Milgram Experiments  where 65% of regular people were willing to apply 450 volts of punishment to another person when directed by authority figures.

Scary how bad most people are conditioned to obay any order.

Murf_DaSurf's picture



I agree, in fact the only shock will be the numbers of people they will actually kill until they are told to stop.

Pool Shark's picture



"Is This End Of Chinese Central Planning?"

Voice of Truman Capote: "I will tell you, Mr. Wang, if you can tell me why a man who possesses one of the most brilliant minds of this century can't say his prepositions or articles..."


Ralph Spoilsport's picture

Read up on these guys and how they are preparing for the final conflict. Are you in physical shape? If not, can you allow yourself to serve as an auxiliary and provide support to the guys who will be putting their life on the line? If you can cook, reload brass, run a comm link, you too can be one of  'They also serve who only sit and wait'.

"When I consider how my light is spent
Ere half my days in this dark world and wide,
And that one Talent which is death to hide
Lodged with me useless, though my soul more bent
To serve therewith my Maker, and present
My true account, lest He returning chide,
"Doth God exact day-labour, light denied?"
I fondly ask. But Patience, to prevent
That murmur, soon replies, "God doth not need
Either man's work or his own gifts. Who best
Bear his mild yoke, they serve him best. His state
Is kingly: thousands at his bidding speed,
And post o'er land and ocean without rest;
They also serve who only stand and wait."

Deathrips's picture



What really pisses me off is that any fine or incarceration incurred by them, is billed to the tax payer. Either through currency devaluation or tax. Global Uncle Sugar has no money, its our money. They are probably all in on it on a global level, sweet racket.


Long Guillotines, they are on sale!!!!




FreedomGuy's picture

I will categorically disagree. First, I agree on the underlying point that people in power want to stay in power and be wealthy. I actually believe that the Chinese leadership wants China to be number one in many ways starting wtih economically powerful. Wealthy people in business derive wealth from their businesses but they like the business to be healthy, as well. I will suggest that the Chinese leadership is similar. They are coming from overt autocracy to free-er markets. The USA and West, in general is going the opposite direction. I suggest the leaches in the West are far lest honest and interested in the well being of their countries, particularly the USA. Do you think Obama even knows anything about economics? He was probably an absentee college student registered as a foreign national who became a community organizer, which is a fake profession.

The Chinese have used overt force in the past. They are not strangers to that sort of thing. The USA uses covert force like IRS, NSA, and implied threats. Overt force only comes later. Overt militarized police has always been Plan A unless you ignore commie history. I think it is silly to equate both countries. I do not believe there is a formal Plan B in the USA, yet but that as government learns it has no limits (with the blessing of SCOTUS) then this will be the evolution.

However, my main point is that the Chinese mindset is different. I actually believe they want to succeed even if their economics are bad. I beleive there is a chance, just a chance that they might moderate Keynsian type interventions if they truly believed there is a better result available.

29.5 hours's picture



The question posed by Stephen Roach is elementary and very important. As he pointed out,  difference in terminology between "planned goals" and "forecasts" distills the fundamental difference between the planned economy and the capitalist market-based economy.  His question was tantamount to asking "Is China still communist or is it capitalist?"  Central planning of labor policy and industrial growth is impossible if world markets are the determining factor.

The answer of the Chinese Minister of Finance seems to be that China is still guided by the structures of central planning (as opposed to formerly communist Poland for example) but those institutions are being dismantled in a conscious way.

The U.S. Fed's "central planning" is of a totally different nature.  Their monetary policies do not take for their basis the economy as a whole. They are not planners but manipulators.  They focus all their moves on fortifying the well-being of the government and of their component banks. Market forces do not constitute the foundation of their plans. Markets are for manipulation.




FreedomGuy's picture

"Manipulation" is the key term. I agree.

Dr. Everett V. Scott's picture



People forget history.  President Wilson had the military fully armed, with machinegun nests set up in the Capitol mall, prepared to open fire on the discharged WWI veterans who were peacefully assembling to protest the denial of their promised benefits.  Only a series of strokes kept Wilson from carrying out the wholesale murder of American citizens.


President Lincoln canceled habeus corpus by decree. Martial Law. And so on. The precedents are set. It sounded preposterous when Obama compared himself to Lincoln. But there is method to his seeming madness.


Anyone who believes that the Obama Administration wil not murder U.S. citizens wholesale is either a fool, or ignorant of American history.


Question: What is to stop Obama from declaring Martial Law on any convenient pretext, canceling the next election, and ruling as dictator?  He is already three-fourths of the way there. The feckless Congress won't even file suit over Obama's flagrant, repeated, illegal and unconstitutional acts.


And the military?  Obama has made it clear to the top generals and admirals via the Petraeus example, and others, that they had to make a choice: play ball, or retire. The patriotic ones are retiring en masse.  The ones who are left are ambitious, and they could not care less about the rule of law. Obedience to the C-in-C has been drilled into them for 30 – 40 years. Now the military house-cleaning is almost complete. Things are going according to plan:

[click in image to embiggen]


Question: why do local police forces need thousands of armored vehicles? Why do federal departments like Education need billions of rounds of ammunition??


Look around the table.  If you don't spot the chump... it's you.

Bryan's picture

Maybe they got Bang Ding Ow to find Som Ting Wong?


NoDebt's picture

Wait, I thought China's ability to "command" their economy in very direct ways was the envy of central planners worldwide the last 5 years or so.  And they're going to walk away from that?  Heh heh.  OK.  Whatever.

FreedomGuy's picture

Good point, but my guess is that even the Chinese leadership knows that empty malls and cities for the sake of fake GDP will not really make a prosperous future for them down the road. They are fairly decent observers of history.

Central planning will probably never go away as it appeals to the ego of the "leaders" in any country and it is sort of demanded by the dependent populace of most nations who believe the myth of omniscient caring leaders.

Flying Wombat's picture

The co-existence of some forms of central planing with market-based dynamics governing major portions of China's economy can remain the norm for far longer than most expect.  

Ban KKiller's picture hundred years. They have a plan and it is working fine.

The March will be to their headquarters. 

Mr Giggles's picture

So your earning coin & paying taxes, god for you.

us not so much.

blindman's picture

rumors of the death of chinese central planning
are greatly exaggerated, just a guess.
28 MARCH 2014
Jim Rickards: Study Will Show That Gold Is Being Manipulated on the Comex (Again)
"If I were running the manipulation I would be embarrassed at this point, it is so blatant...The regulators have been asleep at the switch."
Jim Rickards
The real smoking gun will more likely be tied to be an unanticipated default somewhere in the system. And then people will ask, 'how did we not see this coming?' And the hunt for a scapegoat or patsy will be underway. God will not forgive us if we once again allow some of the old and shameful persecutions of the weak and innocent and the other to carry that burden of guilt yet again.

The public will be trimmed and skinned in yet another bailout, or should I say 'bail-in,' to replace what had been rehypothecated. Possession will be nine-tenths of the law. And the big crooks will throw the shills, stooges, and the little crooks to the mob, without a second thought.

It is different this time, because we are different. It can't happen here. The most delusional words ever spoken. " jca

q99x2's picture

Shortly after the US shifted to a services based economy financial FRAUD exploded, so much so, that the entire world now waits, day by day, for the annihilation of the human species.

Seer's picture

Standard progression, from actual growth to faked growth.  It ALWAYS ends this way, ideologies have no impact as long as growth is the aim.

AdvancingTime's picture

Sustanability be damned fool speed ahead!

     "The fool part was not a typo"

Quus Ant's picture

China has been centrally planned since the Qin dynasty.  221 BCE.  If anything the game gets a new name.  A new coat of paint.  But title will not be changing hands.

noless's picture

If they don't unleash their people they will do it on their own.

Yen Cross's picture

    Where's my stipend? { per diem}

ozzzo's picture

So they can just stop central planning and everything will be fine, just like that. Good luck.

Seer's picture

Roach, the ENTIRE fucking world pushes growth (and on a finite planet that's certain failure).  China is only being blatant.

Where do folks like you come from?  And, why does anyone really listen to you?

I can go down to the small-time city govt offices and see their budget "forecasts," which are ALL about projecting growth (only, these days it's bit tough to fake this shit).

Yen Cross's picture

Seer I like you.

    When the laundry is finished. you'le thank me

AdvancingTime's picture

Your point is heard! Lack of proper planning across the planet is one of the worlds ten most crucial problems. Below these are counted down from "least to most crucial"  The world must begin to address these many problems with long term solutions. Most of these are issues that center on our sustainability. Sadly, politicians do not deal well with such things leaving us without direction.

honestann's picture

!!!  WAIT  !!!
!!!  WAIT  !!!
!!!  WAIT  !!!

Is the premise of this article that the so-called western nations are "market economies"?  Is the premise of this article that the so-called western nations are not predator-dominated authoritarian tyranny?

If the Chinese noticed anything at all, they noticed that western-style tyranny is just as much tyranny as their own slightly less subtle brand, so they can allow the pretense of liberty (economic and otherwise) without giving up one tiny bit of their authoritarian tyranny.

Grouchy Marx's picture

If China abandons central planning, maybe the Fed could follow suit?

Seer's picture


Problem is, people think that there can be anything other than a distorted market.  POWER fucks things up, and power tends to collect and condense such that what it started out as/to be is totally unrecognizable (and not in operation).

I REALLY encourage people to read this (again, hat-tip to the ZH-er that introduced this a while back):

Fate of Empires and Search for Survival

It really should be "Fate of Growth"...

Schmuck Raker's picture
Stephen Roach: Is This End Of Chinese Central Planning?

Pardon me, but what is the missing expression?


Stephen Roach: Is This End Of Chinese Central Planning[any different from the other end]?



Stephen Roach: Is This [THE]End Of Chinese Central Planning?



Stephen Roach: Is This [THE] End Of Chinese Central Planning[ as we know it]?



Stephen Roach: Is This End Of Chinese Central Planning[better than what the West could hope to accomplish with their weak attempts at Central Planning] ?


Well,maybe you get my gist by now.


NoClueSneaker's picture

Rehypotecation of that lousy 7% of growth would do the trick .

Lloyd, save the China .


Long rope.

d edwards's picture

The prosperity/central planning inverse curve diagram on the headline says it all-it looks just like the last 5 years under the 0bamao regime.

justsayin2u's picture

China and the US ruling classes will never give up control - it's too lucrative.  It is in the nature of the type of people drawn to and allowed to compete for these positions.

AdvancingTime's picture

Roach has for a long time pointed with awe at how China was growing. It appears to many of us the lack of proper planning has gone on way to long. Every country has unofficial lenders, but in China individuals, companies and even local governments who can not get loans from state-controlled banks have been on a borrowing binge from these unofficial sources. China is awash in overcapacity and debt.

After several years of growing debt loads concern is rising the whole unstable pyramid is about to come crashing down bringing China and possibly the global economy with it. The economic efficiency of credit is beginning to collapse in China and the unwinding of China’s giant credit spree could be vary painful. More on China's credit trap below.

scraping_by's picture

Mr. Roach needs to do a little better on his crosscultural studies. I believe what we have here is the old Chinese expression, 'Making faces for the barbarians.'

The PRC got where it is with central planning for a mercantile economy. Their recent cooling of growth is just the echo of the economic decay of the economies they're parasites on. Especially the US.

Japan found that out when their central planned mercantile economy damaged the US economy enough their revenues stopped growing. They then tried to shift to financial services and the last two decades have been one long recession.

Will the traditional scorn of the Chinese for the Japanese lead them to avoid that trap, or will they believe they can shift from manufacture to speculation and do it successfully? The delusion that zero sum exchange economies are just the same as creating real world goods is attractive, if you're one of the gang. On the other hand, seeing what actually happens to nations who go neoliberal tells a different story.

China already has a traditional economic system alongside its government-directed export economy. They're not likely to give up the money pump of the latter just to fit into the world leader crowd.


Remington IV's picture

wow , this is so fucking hilarious