China’s economy has more imbalances today than it did when Mao Zedong’s (毛澤東) Great Leap Forward campaign contributed to a crash half a century ago, Goldman Sachs Group Inc’s Ha Jiming (哈繼銘) said.
Fixed-asset investment in the world’s second-biggest economy amounted to 46 percent of GDP last year, the vice chairman of Goldman’s money management unit in China on Wednesday said at conference in New York.
That is more than in 1958, he said, during Mao’s ill-fated effort supercharge China’s transformation into an industrialized nation.
“The economy is more distorted and imbalanced than the Great Leap Forward,” Ha, who is also the chief investment strategist at Goldman Sachs’s wealth unit in China, said at an event hosted by Beijing-based Caixin magazine.
While rapid investment has turned China into one of the 21st century’s fastest-growing major economies, it also led to overproduction in industries from steel to cement and sparked concern that some projects would fail to generate the returns needed to service a record build-up of debt.
China’s ratio of investment to GDP has exceeded that of Japan in the late 1980s, just before a bursting of that nation’s real-estate bubble ushered in more than two decades of anemic growth, the IMF said.
China’s GDP probably expanded 6.8 percent in the third quarter, which would be the slowest since 2009 and below the government’s target of about 7 percent for this year, according to the median forecast of economists surveyed by Bloomberg before the data is released on Monday.
Mao, who died in 1976, began the Great Leap Forward as an attempt to modernize China’s economy.
He made major investments in state-run enterprises, established agricultural collectives and ordered citizens to set up backyard steel furnaces — used to melt down everything from utensils to door handles.
Historians have said the movement, coupled with a drought, contributed to a famine and millions of deaths.
While Ha did not suggest anything similar would happen to modern-day China, he said the economy would only rebound once Chinese President Xi Jinping’s (習近平) government tackles producer-price deflation, overproduction and excessive lending.
The former IMF economist implored authorities to avoid the pursuit of growth at any cost.
The reform of state-owned enterprises holds the key to unleashing China’s potential, Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, told the conference.
State-owned enterprises earn returns of as little as 3 percent on their 110 trillion yuan (US$17 trillion) of assets, less than half the rate of private companies, he said.
Turning to the yuan, Ha said his Chinese clients complained it was becoming more difficult to transfer money abroad after recent policy changes led to a tightening of capital controls.
The People’s Bank of China stepped up intervention to support the currency following a surprise devaluation in August.
While the central bank has the resources and willingness to keep the yuan stable in the short term, the currency would weaken in coming years as the country’s trade balance turns from a surplus to a deficit, Ha said.
“In the longer run, the renminbi [yuan] should depreciate,” he said.
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