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CHINA: Deep Concerns Amid Rapid Economic Growth

BEIJING, Dec 27 2009 (IPS) - Economic figures have now confirmed what analysts have long predicted would be the defining event of 2010. After 30 years of spectacular growth, China is poised to overtake Japan as the world’s second largest economy and firmly establish itself as the leading source of global growth.

But the news has raised consternation along with pride at home as policy-makers, experts and ordinary people are piecing together conflicting signs of rapid growth, rising overcapacity, inflated property prices and continuing high unemployment.

While policymakers worry that China’s ascendance would give rise to more expectations of greater global management sharing, observers fret that the country’s economic rebounding over the last year has been accompanied by a very steady nationalisation of industries.

The public, for its side, grumbles that great-sounding economic indicators do not reflect the day-to-day reality for ordinary people.

On Christmas Day China reported revisions to official data that showed its economy was faster-growing and closer to displacing Japan as the world’s number two economy. The National Bureau of Statistics said China’s 2008 gross domestic product was 4.52 trillion U.S. dollars, narrowing the gap with Japan’s GDP of 4.9 trillion dollars for the same year. China’s economic growth for the year was revised to 9.6 percent from 9 percent.

“It is great to hear that China would soon be the economic leader of Asia, but how does this affect us?” asked Cao Jinling, a real estate consultant in Beijing. “I deal in properties and I know that many people are excluded from the property boom. They can’t afford to buy even a single-bedroom apartment outside of the central business area of Beijing. Can we compare ourselves with people in Tokyo?”

China’s extraordinary resilience to last year’s global financial woes has elicited praise from all quarters, but Beijing is increasingly worried that its stimulus measures could inflict long-term side effects on the economy in 2010. To prevent a sharp economic downturn in the beginning of 2009, Beijing implemented a stimulus package of 4 trillion yuan (588 billion dollars), coupled with loose credit policy that has fueled growth but also exacerbated existing overcapacity.

Foreign businesses have warned that the new investments funded by China’s stimulus plan may swamp world markets and lead to a surge in trade conflicts.

“China’s growth model requires that external demand – the European Union and the United States – be able to absorb the overcapacity it produces,” said a November report by the European Union Chamber of China, warning that given the weak economic recovery in the developed countries, this overcapacity was unlikely to be absorbed.

Yet China is adamant that next year, it will continue seeking a bigger share of global exports. “China’s exports in 2010 will grow, and there’s no doubt about that,” vice-minister of commerce Zhong Shan told a forum at the University of International Business and Economics in Beijing Sunday.

Zhong said China has emerged as a “big trading nation,” most likely replacing Germany as the biggest world exporter but it was not yet a “powerful trading nation.” Exports meant growth and growth meant jobs for thousands, probably millions of Chinese people, Zhong said in China’s defence. China’s share of the overall global trade surplus has nearly doubled this year, even if its own surplus has shrunk, reflecting the downturn of other major exporters.

China’s critics have become more vociferous, charging its export-friendly polices and control of its currency, the yuan, have robbed other countries of jobs.

Next year China is likely to feel even more pressure on its currency policies. More countries, including some Asian exporters, have joined critics in the West blaming China’s unofficial policy of repegging the yuan to the dollar since the summer of 2008 for making its products artificially competitive.

But premier Wen Jiabao said Beijing was not likely to yield to pressure on the yuan. Demanding a stronger yuan while adopting trade protectionism at the same time by some foreign countries is meant to arrest China’s development, Wen said Sunday in an interview with the state news agency Xinhua.

“Keeping the yuan’s value basically steady is our contribution to the international community at a time when the world’s major currencies have been devalued,” he added. However, defiant Chinese leaders’ rhetoric may sound they have their hands full handling concerns over the side effects of the government’s drive to support growth such as assets bubble and the danger of inflation.

In the same interview with Xinhua, Wen added that while exiting the stimulus policy prematurely could hurt the economy, Beijing needed to prepare itself for the likely emergence of inflation due to higher global commodity prices and the country’s own money supply growth.

Liu Yuanchun, professor of economics at Beijing Tsinghua University, agreed, saying, “If we continue with the same stimulus measures in 2010, next year will probably be fine but longer-term problems would become more entrenched, and we face a real threat of resurging inflation.”

Experts point out another worrying trend that has emerged as a consequence of the huge stimulus programme. China’s state-owned enterprise that have benefited from Beijing’s 4-trillion yuan stimulus package and the accompanying loose credit policies have encroached on the domain of the country’s private sector.

An investigation by the Economic Observer newspaper this month showed that over the last year a de-facto nationalisation of major private companies has occurred in at least three sectors – coal mines, dairy and steel.

Experts worry that a main engine for growth such as the private sector is now being squeezed out in favour of China’s big state-protected companies.

“It is a real pity that while we keep calling for innovation, our private companies can only rely on stock markets in Hong Kong and New York to realise their dreams for growth,” said Chen Zhiwu, expert on socio-economic policy at Tsinghua University. “China’s own stock markets have for years been the reserved domain of the country’s state-owned enterprises.”

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