Did the Chinese economy really fool the world?
- By Yi Xianrong
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E-mail China Digest, August 15, 2014
The documentary pointed out the unhealthy growth patterns of the Chinese economy over last five years. This is not a question and there is no right or wrong answer to such a non-question. The film simply outlines the facts; it did not, contrary to what some might say, demonize the Chinese economy. Undoubtedly, the past five-year period of economic growth brought unprecedented short-term prosperity to China, as China became the world's second largest economy.
The side-effects of this economic growth pattern, however, are indeed serious and not to be understated. Firstly, judging from historical experience, credit expansion mechanisms need to be controlled with moderation. Otherwise, such expansive debt will only lead to severe financial crisis. This is an immutable economic law. China is faced with great problems, such as an over-heating shadow banking sector, the risky financing schemes of some local governments, and the possibility of credit defaults, which are all currently considered to be in a controllable range by the Central Government and economists alike. As long as housing prices continue to rise (or at least not plummet), such problems will not be exposed. Yet the cyclical adjustment of China's real estate market will occur sooner or later, and a financial crisis just might happen then. And it will be the excessive expansion of credit that will be to blame. This issue must not be underestimated. The documentary raised a valid question that the Chinese government should consider. As the Chinese idiom goes, it is better to believe that something exists than it does not. We need to nip the problem in the bud.
Secondly, due to the past economic growth patterns, an immense amount of wealth has been transferred to a bank accounts of a few people over a very brief period of time. This discouraged people from real economic engagement and led to a focus on real estate investment, an area considered much more lucrative than any other industry. This has influenced tremendous change regarding the country's social values. As a result, social contradictions and conflicts have arisen. Rent seeking activities among government officials has increased. There are many severe obstacles to economic reform and social development in the future that should be addressed sooner rather than later.
Thirdly, hasty over-urbanization that is reliant on real estate not only influences domestic industrial restructuring but also threatens sustainable economic development. As resources from across China pour into the real estate sector, hoping to capitalize on the flood of urban migration, any significant fluctuations in the real estate market will greatly impact the economy as a whole.
The title of the documentary is a little exaggerated. It is somewhat abstract to say "China is fooling the world". However, the central idea behind the documentary - risky economic growth led by excessive credit and real estate expansion– is very real. The current high GDP growth rate is not sustainable. Wuhan as a city is not alone. Other cities in China may present more danger, with a possible bursting housing bubble in Ordos (Inner Mongolia Autonomous Region) and Wenzhou (Zhejiang Province) disastrous.
Rather than be overly concerned with the BBC's fault-finding comments, we need to clearly recognize the potential danger within the Chinese economy at present and be aware of how the government means to address the issue. The documentary provides us with simply another angle by which to observe the Chinese economy. China will not fool the world, but the world won't be fooled by the BBC either.
The author is a columnist with China.org.cn. For more information please visit: http://china.org.cn/opinion/yixianrong.htm
This article is written in Chinese and translated by Wang Lei.
