China's high economic growth has become a sort of myth in Taiwan. Under the psychological impact of the contrast with Tai-wan's recession, many people in Taiwan give high grades to China for its economic development. The problem is that the grades are too high.
Foreign trade already accounts for one-third of the Chinese economy. In a situation where the global economy finds itself in an slowdown, it is not possible for Chinese imports/exports alone to be doing well. The overall economy, however, is still growing fast, and intelligent people should ask: "How can this be possible?"
Not long ago, the Chinese stock market experienced significant problems, exposing the extent to which it had been inflated. Stock markets reflect the economy and inflation in the stock market is a reflection of inflation in the overall economy.
The more serious problem behind the bubble is that in order to maintain political stability, the authorities shape the economy, forcibly stimulating domestic demand and creating an image of prosperity through political means. This method is counterproductive and will only result in an economy that is superficially strong but inherently weak.
Despite Taiwan's unanimity in looking favorably on the Chinese economy, the Chinese Communist Party itself has admitted that the country is facing a multitude of problems. In a report on the state of the economy and social development plans delivered to the National People's Congress some time ago, the chairman of the State Development Planning Commission (國家發展計劃委員會), Zeng Peiyan (曾培炎), frankly admitted that China faced five major problems.
These range from the sharp drop in the growth of real exports (from 13.7 percent in January to 0.6 percent in June) to a fall in farmers' income; from the supply of commodities exceeding demand to rising unemployment among professionals (official urban unemployment has already reached 3.3 percent). There is also a persistent problem with droughts. In addition, there is still potential for a financial and monetary crisis.
In 1998, the central budget deficit had already exceeded 2 percent of GDP. Last year it exceeded the internationally recognized warning level of 3 percent. The national debt has reached double-digit levels. Looking at budget distribution, central fiscal revenues as part of national financial revenues fell from 67 percent in 1994 to 56 percent in 1999, and expenditures have fallen from 72 percent to 64 percent.
In the same period, the central budget deficit increased from 85 billion yuan to 241 billion yuan. Continued economic growth of 7 to 8 percent under such conditions is a result of the authorities' forcing growth by moving funds around and greatly expanding the extent of bank credits and national debt. With the budget deficit showing no signs of decreasing, investment in fixed assets from January to July this year has reached US$134 billion, an increase of 18.4 percent over last year, with July alone showing a growth of 20.4 percent.
To guarantee such growth, the government last year added an additional US$6 billion to national debt. The Ministry of Finance also states that issued national debt this year will increase to US$160 billion. Almost half of the US$6 billion are used to pay interest on already issued debt. The Asian Wall Street Journal calls this kind of economic growth "distorted."
People who remember the Asian financial crisis will smell trouble coming. The risk of a financial crisis exploding in China is escalating. The government's measures for dealing with the situation revolve around one concept: borrowing now to muddle through the present stage at any cost. But what about tomorrow? Can this kind of artificial economic prosperity really last for 20 years? I don't think so.
Wang Dan is a Chinese pro-democracy activist.
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