Op-Ed Contributors
Economy needs some tweaking
By He Fan (China Daily)
Updated: 2009-12-21 07:39
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The Chinese economy has an excellent record in at least one respect - its GDP growth rate is likely to touch 8.5 percent this year. This may not be as high as in previous years, but is still stunning given the severe state of the world economy currently.
The domestic economy is, however, not as perfect as it looks. It has a few inherent flaws.
The government's macroeconomic policy this year was aimed at "maintaining growth, restructuring, increasing employment and improving people's livelihood".
So, even as the GDP growth rate seems robust and may exceed the targeted 8 percent, the record is patchy in other areas.
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The booming realty market may force more migrant workers to return to the cities, but if the rising investment in real estate is not sustained, then they may lose their jobs, triggering massive unemployment.
College graduates will also confront a tougher employment scenario and may turn into one of the most unstable groups in society.
If the unemployment problem is not solved, real incomes will not increase.
The economy may have grown at a fast clip this year, but disposable incomes have actually decreased and wage distribution is slowing as a result of rising corporate profits not translating into higher real incomes.
Second, a sizable chunk of public investment has gone into infrastructure creation and heavy industries. Yet, they have not set right the imbalanced industrial structure; only worsened it further.
Moreover, with more money flowing into capital-intensive sectors, the funds for creating jobs are in poor shape.
China's export-oriented industries too are having a hard time, and they face numerous obstacles pushing into the domestic market, chiefly because it is not easy for them to find the same excellent service as transnational service-oriented firms such as Wal-Mart and UPS.
The key to invigorating the sector is to energetically boost service-oriented enterprises, which also crucially improves people's livelihood.
If citizens and enterprises are respectively stimulated to spend and invest more, then domestic demand can get a leg-up.
It is always easier to drive consumption by giving more subsidies, consumption credit and distributing discount coupons to the people. Then the most effective measure, of course, appears to be helping residents to buy more houses.
Over the last 10 months, nearly 6 trillion yuan have flowed into the property and stock markets, it is estimated.
A booming housing market may directly promote domestic consumption, but is also an instance of drinking poison to quench the thirst. The central government recently took steps to cool the overheated real estate sector, but the process of urbanization is expected to continue.
The government may have intended to attract more farmers to second- and third-tier cities, but the policy may lead to unexpected side effects.
First, local governments have given little thought to receiving more migrants from rural areas. The current city planning has not chalked out issues related to housing for migrant workers, their healthcare, education for their children and future employment.
Second, farmers prefer big cities or metros to smaller ones as they have more employment potential.
These two factors mean the policy of accelerating urbanization brings in not only a need for more houses, but also speculators into the realty space.
If property prices in smaller cities too climb steadily next year, then China's housing bubble may soon burst.
What we need to do now is to readjust the structure whereby energy-intensive, polluting and export-oriented industries are curtailed, and the services sector, which was limited previously, thrown open to more investment.
If the policy were tailored to bring in more private and international money into service industries such as logistics, storage, transportation, telecommunication, finance, insurance, education and medical services, it would create huge employment opportunities.
It will also help improve China's manufacturing competitiveness, reduce energy consumption, cut pollutants and help improve people's livelihoods.
The author is with the Institute of World Economics and Politics under the China Academy of Social Sciences.
(China Daily 12/21/2009 page4)
