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China Cannot Survive on Economic Growth Alone, says Scholar
WASHINGTON, September 23, 2004 - China scholar Minxin Pei told a seminar of IRP fellows and SAIS students that China must address its �social deficits� if it hopes to sustain its economic growth. While growth has made many Chinese better off, serious problems of income inequality, rural poverty, health care and the environment could undermine continued progress.
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| Minxin Pei |
Pei, director of the China Program at the Carnegie Endowment for International Peace, said the opening of the Chinese economy has led to explosive GDP growth of 400% in real terms over the past 25 years. The country�s international trade has grown 40 times during the same period. The Chinese economy is now between the second and sixth largest economy in the world, depending on what measurement is used, and is one of the largest magnets in the world for foreign investment, attracting 600 billion dollars of foreign direct investment over the past quarter century. If he had heard such numbers predicted 25 years ago, said Pei, �I would say you are smoking something�and it is not a cigarette.�
As a result, China�s massive import and export activities exert both inflationary and deflationary pressures in the world economy. The sheer size of China�s economy has become an engine for growth the entire East Asian region. Its voracious demand for commodities like oil and iron ore drives up prices on the world market. Its huge labor pool and low wages create deflation, as global consumers demand more manufactured goods at what is commonly known as the discounted �China price.�
But Pei warned that China�s long-term economic picture is threatened by political problems inherent in China�s state control of the economy. He pointed out there are no serious capital markets in China. State-controlled banks have taken on non-performing loans equal to 35% of GDP. Poor investment decisions by banks have the effect of halving China�s real savings rate from 43% to just over 20%.
Pei says state-controlled banks demonstrate the broader problem of a lack of accountability in China�s political structure, which provides incentives for local officials to focus only on manufacturing growth, rather than people�s living conditions.
As a result, much of China�s economic growth is mitigated by enormous �social deficits.� �This headlong rush to growth has led to neglect of the environment, education, and inequality.� Pei said only 10% of China�s rural inhabitants have any kind of health care. �If you do not have a healthy workforce, then you cannot grow.� Pei said too many Chinese local officials have become too powerful, and devote too much of their attention to so-called �image projects�, such as landscaping and shopping malls, designed to improve their political status within the Communist Party, rather than to improving schools and healthcare. Pei went so far as to call Beijing�s hosting of the 2003 Olympics the �mother of all image projects.� He said the costs of hosting those games, in the face of China�s acute rural poverty, are �morally unjustifiable.�
Copyright © 2005 International Reporting Project. All Rights Reserved.