The “Smog Effect†and Its Impact on Next Year’s Growth Target
The Central Economic Work Conference is about to take place, and environmental issues are expected to dominate the agenda.
The Central Economic Work Conference, which will be held shortly, is considered the most authoritative source for evaluating the economic outlook for the coming year. As the first such meeting after the Third Plenary Session of the 18th CPC Central Committee, it will provide more detailed insights into the government's reform plans and strategies. According to multiple sources, the meeting is expected to occur this week.
According to reports from the First Financial Daily, next year's focus will be on two main areas: development and reform. Economic growth will emphasize domestic demand, while reforms will prioritize quality over quantity. This shift could accelerate the adoption of green accounting practices and other sustainable initiatives.
Recently, the Central Organization Department issued a notice stating that future assessments of local party and government leaders should not solely rely on regional GDP and growth rates. It also prohibits ranking regions by these metrics, especially in poverty-stricken and ecologically sensitive areas, where GDP assessments may no longer be used.
In the current climate of widespread smog across the country, many experts have suggested that green and low-carbon development, energy conservation, and support for eco-friendly agriculture will become key topics at the conference. Some scholars argue that if the GDP target is set at a lower level, smog control must be a top priority.
Focusing on the GDP Growth Target
After the leadership change and the Third Plenary Session of the 18th Central Committee, the Central Economic Work Conference is seen as a crucial starting point for economic policy. This meeting marks the first time that President Xi Jinping and Premier Li Keqiang have jointly outlined China's economic strategy, and it will play a vital role in guiding the transition from quantity-driven to quality-driven growth.
An internal scholar told the newspaper that this conference will not only lay out the overall economic direction but also serve as a critical step in implementing the Third Plenary Session's reform agenda. It will guide whether China can successfully shift from a growth model based on scale to one focused on quality and sustainability.
Following the release of the "Decision" at the Third Plenary Session, the specific content for next year's work was unclear. However, after the December 3rd meeting of the Political Bureau, the macroeconomic framework for next year became clearer. The Political Bureau emphasized maintaining stability while promoting progress, balancing growth, restructuring, and reform through innovative policies.
One of the highlights of the Central Economic Work Conference is determining the GDP growth target, which has sparked widespread speculation. Most institutions predict a range between 7.0% and 7.5%, with later forecasts tending to be higher.
Scholars noted that China's economy has entered a new stage, requiring new ideas and methods. Additionally, due to personnel changes across ministries, provinces, and the military, the future governance approach is expected to undergo significant changes.
“GDP should not be the sole measure of success,†said one expert. “But it is still the foundation of stability.†Compared to the July 30th meeting of the Central Committee, the direction of macroeconomic regulation remains consistent—balancing both development and reform.
Reports indicate that next year's key reforms will likely include price adjustments for public goods, resource tax, and consumption tax, along with broader “camp reform†measures. Major sectors such as administrative, fiscal, financial, and state-owned enterprise reforms will continue to advance. According to previous State Council plans, national and local balance sheets will be further developed, and a state-owned enterprise reform plan is expected to be announced.
Will Smog Influence the Growth Target?
In the debate over setting reasonable growth limits, the issue of “black GDP†obtained through environmental degradation has become increasingly evident. Recently, severe smog has affected many cities nationwide, leading to school closures, car restrictions, and flight delays. The simultaneous haze outbreaks in North China, East China, and the Korean Peninsula have made this problem impossible to ignore.
Experts suggest that if the GDP target is set at a lower level, smog control must be a key consideration. Guan Qingyou, deputy director of the Minsheng Securities Research Institute, believes that the smog issue could significantly impact next year’s economic growth target.
Meanwhile, there is a growing debate between GDP growth and environmental protection. Some scholars argue that China must maintain a certain growth rate, while others believe that lowering GDP would allow for addressing past environmental damage.
Lu Aiping, a member of the National Committee of the Chinese People's Political Consultative Conference, stated that even if GDP is sacrificed, smog must be eliminated. He emphasized reducing coal use, limiting vehicle travel, and curbing construction. Rather than lowering GDP, he argued, controlling smog is the main solution.
“Green GDP†is gradually becoming a consensus, with President Xi Jinping emphasizing that “the hero is no longer simply measured by GDP growth.†From the central to local levels, improving assessment methods and incorporating ecological benefits into performance indicators has become a new practice.
In the second half of this year, the National Development and Reform Commission launched a campaign to reduce overcapacity. This process involves upgrading industries and changing past development models to reduce environmental and resource burdens.
As an example, Hebei Province recently initiated large-scale capacity reduction operations. While cutting production, the province is also striving to eliminate heavy pollution. Local officials reportedly said, “If you can't meet the GDP target, you can still get something done. But if you don’t control air pollution, you’ll end up with a black hat.â€
According to multiple sources, next year’s economic work will not only focus on environmental protection during structural adjustment but also use fiscal and tax tools to address smog. Su Ming, deputy director of the Ministry of Finance’s Institute of Fiscal Science, stated that China will promote resource tax reform and introduce environmental taxes in the future, with air and water pollution being the main focus.
Jia Kang, director of the Ministry of Finance’s Institute of Fiscal Science, noted that distorted pricing for basic resources like energy is a serious issue that China cannot ignore. Market-oriented reform is essential to address this challenge.
Deepening the Path to Economic Transformation
With traditional growth dividends fading, environmental issues are just one of many challenges facing the Chinese economy. Whether China can embark on a transformation path through reform will determine its continued success on the global stage.
The Politburo meeting earlier this month called for reasonable investment growth and structural optimization. Fixed investment has long been the main tool for government-led growth. This indicates that while fixed asset investment will remain a key area for some time, policymakers aim to avoid excessive growth and implement differentiated policies for different investment sectors.
From the information released so far, 2014 will see efforts to guide private investment, increase infrastructure in most areas, and promote new urbanization. Specifically, next year’s infrastructure investment will mainly focus on transportation, especially railways and water conservancy projects.
In terms of accelerating economic structure adjustment, President Xi Jinping has emphasized the need to adjust the industrial structure and focus on resolving overcapacity. Efforts to eliminate outdated production capacity have already begun, with more action expected next year. Previously, the State Council identified five industries as pilot areas for breakthroughs: cement, flat glass, ships, and electrolytic aluminum.
At the same time, Hu Chi, a researcher at the State-Owned Assets Supervision and Administration Commission, told reporters that while overall energy-saving and emission reduction efforts this year have been good, smog persists in most areas. This suggests that energy saving and emission reduction cannot rely solely on industrial measures.
For example, while there is still room for improvement in non-ferrous metal smelting, the power industry has already made significant progress in energy saving and emission reduction. Thermal power units in China now have one of the lowest coal consumption levels globally, making further improvements increasingly difficult.
Hu Chi suggested that in the future, all-round and comprehensive energy-saving and emission-reduction measures should be adopted, including regulating vehicle emissions, improving industrial technology, and enhancing energy efficiency in daily life. With advanced technology, China may follow a shorter path to environmental management, potentially gaining a “post-development advantage.â€
The report of the 18th National Congress of the Communist Party of China highlighted that the core issue of economic system reform is managing the relationship between the government and the market. In the context of overcapacity, finding the right balance between policy and the market is essential for effective regulation and avoiding the cycle of “more and more.â€
Hu Chi also recommended that under the guidance of the Third Plenary Session of the 18th CPC Central Committee, the effectiveness of policy packages should be improved. On one hand, the pace of resource product price reform should be accelerated, and on the other, supervision should be strengthened. Enhancing coordination among policies is essential. In the current situation of overcapacity, enterprises should respond to market changes by adjusting their development concepts and competition models, while the central government should also strengthen accountability for local capacity adjustments.
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