China's remarkable economic gains could easily slip away, a senior American researcher in international economics said in an article carried on Monday by the Los Angeles Times.
Charles Wolf Jr., a senior economic advisor and corporate fellow at Rand Corp said in the article that there are potential fault lines that could severely hinder or even reverse China's economic growth, with dramatic consequences for Chinese society, government and party structure.
He said that among those fault lines are unemployment, poverty and social unrest. The potential for social unrest hangs over the economy. Income inequality between rural and urban areas continues to feed rural-to-urban migration and rising urban unemployment. Should joblessness and social unrest worsen, growth in the next 10 years could annually decline by as much as 0.8 percent.
He said it's difficult to estimate how the country's pervasive corruption may crimp its economic growth. Corruption hurts economic activity. Were corrupt practices to worsen, China's annual growth rate could diminish by about 0.5 percent.
Wolf said the AIDS-associated annual reductions in China's GDP growth could be between 1.8 percent and 2.2 percent. The possible spread of SARS, although less disabling than AIDS, could further impede growth.
China's unreliable water supplies will significantly affect its economic growth. Failure to solve its water shortages could reduce China's annual GDP growth by 1.5 percent to 1.9 percent.
He said the major risk for China's growth is less related to its increasing reliance on oil imports than to crude and gas prices. If prices surge and remain high for a decade, China's annual growth could fall by between 1.2 percent and 1.4 percent.
A recent Rand study estimated that a sustained reduction of US$10 billion a year in foreign direct investment might cut China's annual GDP growth by between 0.6 percent and 1.6 percent.
Wolf said that although the status quo in relations between China and Taiwan broadly benefits the two countries and the US, tensions might escalate into a conflict, with consequences that could lower China's annual growth between 1 percent and 1.3 percent.
Were all these fault lines to fail simultaneously, China's annual growth would be reduced between 7.4 percent and 10.7 percent, resulting in negative numbers for its economic performance as a whole, Wolf said.
The probability of this happening is extremely low, but the chance that no fault line will fail is low as well. More probable, several factors might cluster because of their interdependence, he said.
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