Global Trends by Martin Khor
Monday 16 August 2010
China is a giant country balancing many things all at once: how to keep the economy growing but not too slow or too fast, and how to satisfy people's aspirations for growth but without destroying the environment or social equity
When the global financial struck, the Chinese economy seemingly sailed through it with only a slight dip in growth rates, which have since picked up again.
The slowdown in this year's growth from 11.9% in the first quarter to 10.3% in the second quarter and to an expected 9-10% in the rest of this year may be worrisome to some. But such high rates especially in the present gloomy global environment are the envy of the world.
However, behind the double-digit growth figures is a country in transition and flux, with dilemmas on the future composition of growth, and with the imperatives of further growth crashing against physical and environmental limits.
These dilemmas and contradictions were evident
last week, when I was in
In the first quarter of this year, energy efficiency deteriorated. So there is a government campaign to intensify efforts to meet the year-end goal. Banks are asked to cut loans to energy-intensive firms, tax rebates to them were removed and over 2,000 obsolete steel, cement and other energy-intensive plants were ordered to close by September.
On 7 August the China Daily front-paged a startling
report that more than half of
He explained that buildings constructed before 1949 had passed their 50-year lifespan, many built in 1949-1979 only met basic needs in a difficult time but were not meant for the
long-term and houses built in 1979-99 cannot meet the demands of modern living because of limited space or lack of supporting facilities.
This report is sparking a lively debate about
the quality of existing housing, but also about the environmental consequences
of such a massive re-building goal. Each year,
How much sand and rocks from mountains and coasts, and how much iron from mines will be needed to make the new houses if more than half the homes are to be demolished?
The economic parameters of
Prof. Yu Yong Ding of the
The global financial crisis hit
The turnaround in the economy was enabled by a massive 4 trillion renmimbi fiscal stimulus package supported by ample credit. Much of the spending was on investment and much of that was concentrated on infrastructure rather than manufacturing, in order to avoid overcapacity, according to Yu.
Yu however pointed to side effects of the 2009 expansionary policy, which now constrain its continuance. These include that the massive infrastructure investment leads to low efficiency, waste and overcapacity in the future (which may negatively affect the banking system); a concern over local governments' financial position; and inflationary pressures from excess liquidity (including driving houses prices to dizzying heights).
This led the government to have an early exit
from its expansionary policies. Credit has been tightened, especially
for housing developers and house buyers, and the renmimbi revalued.
Yu believes that
But whatever happens in the near future, Yu is
South Centre chief economist Yilmaz Akyuz pointed
to the high export dependence of
He suggested a new growth strategy based mainly on boosting consumption through an increase in household income via higher wages and government transfers and an increase in social spending.
This has to be accompanied by industrial restructuring.
Many of the exported goods are specific to foreign markets, and thus
the excess capacity in export sectors cannot be used to produce domestic
Meanwhile, the challenges of having an equitable and balanced development was highlighted by Mr Tan Weiping, Deputy Director General of the State Council's leading group office of poverty alleviation and development.
He pointed to challenges such as environmental problems and natural disasters, new epidemics, and risks of market failures where the poor are vulnerable to international crises.
He also highlighted the migration trends with the difficulties from increased urbanisation as there is no insurance system to guarantee the migrants' social security. The income gap is still widening between urban and rural and eastern and western regions.
In 2009 city-rural income gap was 3.34 to 1, compared to 2.2 to 1 in 1990 and the net income of the poor is only 17% of the average urban citizen, so we have an arduous task to do.
In conclusion, what I found in
And a country having to balance between the need to fulfil the growing expectations of its people, especially the rural poor who are migrating to towns for a better life, and the more and more obvious constraints of the environment and the need to minimise emissions.
It is a balancing act that is difficult, especially for a country with such a big population. The rest of the world will be watching to see what happens next, for it will affect them as well.