For most of my time I have been preoccupied with the pending problems of
Taiwan's economy to give any regard to that of China's. Recently I have become
more and more interested in the Chinese economy as I have found its large impact
on Taiwan.
I have reviewed many documents about the problems of the Chinese economy and
through my research I have found that the current problem is very serious. At
any given moment the Chinese economy could potentially collapse. However several
respected experts of the Chinese economy have rejected this view.
Some say if the Chinese economy were to collapse, it would have collapsed a long
time ago. Since China has able to avoid this thus so far, it actually proves
that the society has come to adapt. Therefore the problems, which would have
plagued any other society, no longer pose a great threat to the economy.
Others say the Chinese government is centralized and has tight control on the
local governments. This prevents China from economic turmoil. Also some refer to
the fact that the Chinese government owns all the land. And if problems were to
become severe enough, they could always sell the land as a last resort.
In order to compare the economic transformation of the Soviet Union and China,
many studies have been drawn. They show that China is successful in the
transition into a communist society in comparison to the USSR. Some optimistic
views believe China will become the factory for the entire world and will
eventually become a world power.
On the contrary there are people who believe that the Chinese economy will
someday fall. As time has passed, more and more people share this view.
Regardless of the differences between the two arguments, they all commonly agree
that there is an impending economic problem in China.
1) The Chinese Economic Surface
Ever since the Chinese leader Xiao Ping Deng started the transformation in 1978,
China has experienced twenty years of economic growth. In between, the economy
was able to endure such as event as the Tiananmen Square student movement and
the 1997 Asian Financial Crisis. Even after several industrial Asian nations
suffered negative growth in 2001, China still experienced a steady 7%-8% in
growth. In 2002 China triggered an international round of foreign investments
when the country formally joined the World Trade Organization (WTO). Many whom
have recently visited China found that the country is in a state of nation wide
construction and overall development of the country has been very progressive.
In October 2002, China's Department of State, office of economic study issued an
internal report. In the report, it disclosed that China was economically healthy
and was in a period of optimal stability. It is projected that within the next
ten to fifteen years, as long as there is no big change in the international
economic environment and no big mistake in policy were made, China would then be
able to maintain a constant growth rate of 7%-8%. By 2015, China would then pass
Japan in its combined economic strength, and take 2nd place as a world power.
The average income would then equal that of the mid level EU developed
countries.
Speeches that expressed the economic growth from various Chinese leaders were
filled with confidence. Many foreign investors, who have benefited from special
treatment by the government, believe China is the investor's paradise. China's
economic growth has made a positive impression on many people.
Despite what it appears on the surface, there are still problems rooted
underneath the progressive growth. These are respectively found in the areas of
economic growth, foreign investment, trade, finance, banking, state ownership,
unemployment, income distribution and social factors.
2) The secrets of the "progressive growth"
In 2001, the Taiwan economy encountered its first negative growth since the
1960s, as unemployment rates hit a record low. Singapore, with the healthiest
economy in Asia, experienced a negative growth as well. Economies around the
world also experienced such an event during the same year. Only China at that
time kept a 7.3% growth rate.
There were two problems in this growth rate. First it contradicts other economic
measurements and as a result people began questioning its validity. Second,
could the totalitarian regime be using the high growth rate, like the former
Soviet Union, to hide its impending collapse? Even if the 7%-8% growth rate was
indeed correct, it is minimal in comparison to other Asian countries. Japan kept
an 8% plus growth rate throughout the 50s and the 60s. At the same period of
time, Taiwan kept a 10% growth rate. South Korea has also kept a 9% growth for
past thirty years. Also, the average income in China is still lower compared to
the income of those countries at that time.
One of the experts on the matter is Professor Thomas Rawski from Pittsburgh
University.
The reform has spurred a high growth rate from 1978 to 1997 and there is no
doubt about this. But the growth rate of 1998 is one that is hard to believe.
The reason is simple: for a fast developing country like China, it is impossible
to grow at such a high rate (GDP has accumulated 24.7 in growth between 1997 and
2000) and at same time drop energy consumption (Energy consumption had negative
growth of 12.8%). The growth rate for transportation, such as the airlines,
highways, and trains are lower than GDP growth rate. Also consumer prices have
fallen and the unemployment rate has continued to rise.
When calculating average income for this period, the statistic bureau of China
did not include reports from the local provinces. In 2001, with the exception of
the Yu Nan province, all the local provinces reported growth rates higher than
that of the national average. Upon further investigation, the bureau of
statistics found 62,000 false reports between the months of May and October (Rawski
2002).
In addition, there are also others who question China's growth rate. These
include: Lawrence Klein, winner of the Nobel economics prize, Lester Thurow of
MIT, Lehman Brother of the Economists Magazine, the Moody credit agency, etc. (GaoShang
2002).
Lester Thurow has pointed out that 80% of China consists of rural areas that
have virtually no growth. Since cities only occupy 20% of the country, the urban
areas must grow substantially in order to achieve national growth of 7%. Keep in
mind, that in 2001 Hong Kong and the Chinese financial center experienced
virtually no growth. How could other cities experience such a fast growth rate?
Arthur Waldron reminds us that, Rongji Zhu once stated in public, "If the
government had not initiated a large amount of capitol borrowing, the Chinese
economy would have already collapsed in 1998." Therefore is it possible to reach
a 7% growth rate based upon government borrowing?
In addition, China has a large quantity of unsold merchandise. According to
studies conducted from 1980 to 1993, unsold merchandise accounted for 7% of the
GDP (Sachs, Woo, Yang, 1999). On average, the country rarely exceeds 3%. In
comparison to Taiwan, the unsold merchandise count made up 1% of the GDP
throughout the past fifty years. With a conservative estimate the China's unsold
merchandise count is currently at least 4%. Respectively, 4 points would then be
deducted and reduce the growth rate to 3%. According to the internal documents
of China, the state owned enterprises holds several billion in yuan of unsold
merchandise (QuShan 2002).
Foreign experts are not the only presently who question the economic growth.
China's own, native experts also are puzzled by this phenomenon. Punai Dong,
vice director of the economic committee of the People's Political Consultative
Conference, has mentioned eight major conflicts of the Chinese economy: (1) the
economy is growing at a fast speed, but the price of the commodities continues
drop and the unemployment rate is constantly rising; (2) housing prices still
hold an upward trend, causing the gap between the rich urban areas and poor
rural areas to enlarge; (3) Bank deposits increases, but some corporations are
short on capital; (4) governmental officials still receive a raise in their
salaries, while the deficit is respectively on the rise especially in some local
areas. (5) Since September of 2001, the overall deficit trend continues to be
strong; (6) as the coastal cities boom, a severing gap in growth of many in-land
cities is developing; (7) Natural resources are progressively becoming short in
supply and waste disposal is becoming a heavily impending issue; and (8)
environmental pollution continues to increase.
According to Rawski's estimate, during the years of 1998 and 1999, China's
growth rate fell between 2% and --2%, 2-3% in the year 2000, and 3-4% in 2001.
The estimates from other economic officials vary insignificantly. Governmental
officials and scholars of China have tired to provide an explanation on this
issue, but it is difficult to discern the validity of their responses.
(To be continued)
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