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by Liang Jing On the evening of November 9, the Xinhua News Agency announced ten measures the State Council would take to expand domestic demand, stressing in particular that the government will immediately begin a 4 trillion yuan investment plan. It appears that the tide of migrant worker unemployment along the coast caused by bankruptcy of a large number of enterprises has finally led Premier Wen Jiabao to grasp the great risks facing China's economy, and pushed his determination to make every effort to ensure economic growth. Not long ago, in order to warn Wen Jiabao, Zhang Wuchang [Stephen Zheung] took the lead to issue a very ominous forecast regarding China's economic growth next year, arguing that the question about next year's growth is a whether it will be single- or double-digit, but whether it will be negative or positive [1]. Overseas financial institutions, while not so pessimistic, also recognize that dramatic changes very unfavorable to China are taking place in the global economic situation. On November 8 the Bloomberg website reported a number of overseas financial institutions predicting that China's economic growth rate may be reduced to its lowest for 20 years; a rate as low as 5% cannot be ruled out. Next year's official figures for China's economic growth are, I believe, sure to prove Zhang Wuchang wrong, because even if the real growth were negative, it would be impossible for the officials to admit it. In fact, driven by political pressures and financial interests, a game is going on whereby local governments fake their economic performances; serious inaccuracies have turned up in the economic data for a number of localities. However, no matter how high China's real economic growth rate next year is, the basic fact is unalterable: that China economic growth mode that is highly dependent on exports has come to an end; China's economy has entered a new era full of uncertainties and risks. While the stubborn Wen Jiabao has made a U-turn, those who have spent more than half a year worrying about his outmoded tightening policy now have new worries. They know that, in the face of a serious threat of the economic tightening, Wen's instinctive reaction is like Zhu Rongji's increased government investment, which forcibly pushed the following year's economic growth to into double digits. Not only is this unable to solve the problem of insufficient consumption, it will waste a great deal of valuable resources and further distort the economy, increasing future risk. Since Wen Jiabao sees the danger of such a tendency, on November 7, the 21st Century Economic Herald carried a front-page editorial, entitled "High investment rates cannot maintain the 'old road'." [2] The editorial cited an important analysis of` China's economic development: from 1978 to 1996, that is, from the beginning of reform until the death of Deng Xiaoping, between a third to a half of China's economic growth came from increased economic efficiency, while the economic structure has continued to worsen and efficiency to fall over the past 10 years, while maintaining growth has been achieved mainly by raising the rate of investment. In recent years, the proportion of the rate of investment in the GDP remained at a high level of 43%, but the people couldn't benefit from high-speed growth and the proportion of poor people in the population has been rising. The editorial concluded that China must improve the efficiency of the economy and reduce the rate of economic growth, high investment promoting high-speed growth should be continued, efficiency, and ultimately the people's must inevitably be sacrificed. From ten measures to expand domestic demand announced by the State Department, the focus of Wen Jiabao's policy turns out to be a policy of increasing government investment. When you think about it, this decision is not surprising, after all, China's economic growth pattern depending on investment and export has been going on for many years, Now that exports are forced to drop all of a sudden, if there is a significant decline in investment, China's economy will, as Zhang Wuchang forecast, really be in negative territory. Could Wen Jiabao's 10 measures help China's economy to hold ground, and pass the gauntlet of the global financial crisis? While it is too early to judge, I still believe that not only are Wen's measures a temporary solution, unable really solve the problem of insufficient domestic demand, but there is still the real danger of outbreak of political and social crisis being triggered by comprehensive. The Chinese economic growth model, highly dependent on exports and investment, was not due to accidental mistakes by decision-makers, but is the inevitable result of their deliberate evasion of the difficulties of reform. In the absence of basic rights, the majority of Chinese people are in too much uncertainty about their future; this is the deep-seated reason for Chinese people's inadequate consumption. No one however, from Jiang and Zhu to Hu and Wen, have had the ability or courage to take on safeguarding the Chinese people's fundamental rights. Jiang Zemin and Zhu Rongji escaped the Asian financial crisis relying on the slogan of "develop the Western Regions" and large-scale investment in infrastructure. Following suit, Hu and Wen have relied on economic growth, propped up by the slogan "scientific development" and high exports and investment, to leave the thorny issue of safeguarding human rights to their successors. It was this mentality that made Hu and Wen think themselves lucky, and never reform the social security system or speed up economic restructuring at an early stage. Global financial crisis has now all of a sudden broken out, wrecking their dream and forcing them to carry out a difficult economic transition in their own term of office. In the autumn of 2008, China's 30 years of economic development is at a turning point. A new era is beginning, as Sun Jianfang, editor of the Economic Observer says. This is an "era of Nirvana, needing a courage that can jump into fire, but also an intelligence that can transcend time and space." The problem is that China's leaders, accustomed to muddling along, are capable neither of the courage, nor the wisdom. There is hence nothing for it for the Chinese people but to prepare well for a harsh winter, before they make things worse. [1] Zhang Wuchang, "Bao ling ye hen nan!" [Holding growth at zero will be hard enough!], Xinlang boke, 24 October 2008 [张五常： "保零也艰难！"， 新浪博客，2008年10月 24日 (http://blog.sina.com.cn/s/blog_47841af70100bbqo.html?tj=1#). [2] http://www.nanfangdaily.com.cn/spqy/200811070027.asp http://www.epochtimes.com/gb/8/11/12/n2326956.htm © Copyright 2008 by Boxun News Top of Page |
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