Hidden dangers lying underneath China's high-speed economic growth
Last Updated(Beijing Time):2004-05-17 09:21
By Xu Xiaoran
Despite western scholars' assertion that East Asia's economic growth would not last for a maximum period of 22 years, China's economy has enjoyed a high-speed and stable growth for 25 years, which has been dubbed the "China miracle." In the first quarter of 2004, China's economic growth rate reached 9.2 percent. But along with the high-speed growth of China's economy, internal risks in various sectors are building up, too.
Xiao Zhuoji, professor with the School of Economics in Peking University holds that, a phenomenon of "three highs and three lows" exists in last year's economic growth, and should the trend continue, the rapid development of economy would be affected. The so-called "three highs and three lows" refers to three pairs of disparities. Firstly, it is the disparity between high cost and low output, which means that the resource consumed per GDP unit is too much to sustain long-term development;
secondly, it refers to the disparity between high growth of overseas demand and low growth of domestic demand, as overseas demand increased 30 percent last year while domestic demand increased only 9 percent. As the more dependent an economy is on foreign trade, the more succumbed is the economy to various unstable factors. The supply and demand relations of the international market, the fluctuations in price and foreign exchanges will have great influence on China. What's more, as a country with the largest population in the world, China is supposed to have a vast domestic market, but for many years China has failed to achieve much in expanding its domestic market.
And the third is the disparity between high investment momentum and low consumption power. Generally, the investment and consumption ratio between developed countries is 2:8 and the ratio in developing countries is 3:7, but in the case of China, last year the ratio of investment exceeded 42 percent and that of consumption was only 58 percent. This indicates irrationality in the investment and consumption ratio. It is not the absolute demand but the effective demand that is insufficient. The phenomenon of "three highs and three lows" poses a significant threat to china's sustained economic growth.
Another important issue concerning China's economic security lies in the question that whether the riches brought about by China's economic growth has been effectively and equitably allocated. Xu Hongyuan, deputy director of the development and research office of the National Information Center holds that, at present the output of China's agriculture only constitutes 15 percent of the GDP, but the agricultural industries sustain 60 percent of the nation's population and accommodate 50 percent of the labor force. This is a prominent conflict of the dual structure, which will greatly influence the next phase of economic growth.
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At present, in China's rural areas, tens of millions of people are still living under the poverty line, with an annual income of less than 627 RMB. In the cities, over 10 million are living under the minimum living standard, too, accounting for 6 percent of the nation's urban population. In Beijing, while 22 percent of those living on low-income pensions have no roof over their heads, townhouses and villas mushroom. The situation, if continues, will greatly jeopardize the stability and security of the whole nation. The gap between rural areas and the cities are widening, too, which now stands at 1:3.24, and should the various subsidies be counted, the ratio would be 1:4. All those problems are the hidden dangers exist during the period of rapid economic growth.
The fragility of China's finance system is mainly exhibited by the banks' low efficiency and a trait of low-efficiency operation resulted from a mechanism under which the government monopolies the decision on price. Xu hongyuan holds that, either in the case of the four major state-owned banks or other commercial banks, the leading businesses are still the conventional ones, while over 95 percent of the profit of the conventional businesses comes from the interest rate spread (loan rate minus deposit rate), which stands at 5-6 percent in China at present. This is a rather high level compared with the international standard. This differential actually protects the backward and inefficient system and covers the fact of the banks' low efficiency. It is possible that commercial banks' short term interest is preserved at the price of the middle and long term interest during the process of regulatory control.
Since January 1, 2007, foreign banks will be able to open domestic currency service, i.e., the deposit and loan business of RMB. By that time, domestic banks, with problems like low-efficiency, backward technology, fragile finance and asset debt condition will face severe challenge. Mere financial innovation won't be adequate and the re-structure of the financial system would be called upon.
China's economy has been long challenged by two problems, which are the problems of energy security and industry security.
The issue of energy security, which encompasses such resources as food, petroleum and iron ore, is probably a problem each developing country has to face in accelerating their industrialization. Resources are tradable, but should be traded with techniques, such as the technique of evading price risk. For example, in the case of petroleum, China is expected to import more than 100 million tons of petroleum this year and become the world's second largest petroleum importer, only next to the United States. But China has no say in the world's pricing mechanism of crude oil. Large domestic enterprises should be allowed to do the hedging portfolio business and futures trade on bulk commodity should be opened in China. China is supposed to have a say in the international merchandise market. Therefore the problem is not about whether China has resource or not. No country in the world has absolutely abundant resource; the key lies in that they should learn how to preserve their own interest in international trade.
At present three categories of capitals are competing in the Chinese market, which are the overseas capital, the state-owned capital and the capital from the private sectors. Experts hold that now it is no longer necessary to grant extra-national treatment to foreign investors. After the accession into the WTO, China has entered a phase of profound opening-up and foreign investors no longer think a lot of the preferential policies.
Source:CE.cn
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