FT : Chinese Academics Speak Up About Social Disparities

Friday, December 24, 2010

China’s growth model is unsustainable and the country faces a sudden slowdown unless it undergoes urgent economic and political reforms, according to a renowned Chinese academic.  A scathing indictment of the country’s extraordinary growth story, written by Yu Yongding, a former member of the People’s Bank of China monetary policy committee, has been published in the state-controlled China Daily newspaper.  It points to rising social tensions, pollution, a lack of public services and an overreliance on exports and investment, particularly in property, as threats to the nation’s economic future.  “China’s rapid growth has been achieved at an extremely high cost. Only future generations will know the true price,” Mr Yu wrote in an editorial.  “[The] growth pattern has now almost exhausted its potential. So China has reached a crucial juncture: without painful structural adjustments the momentum of its economic growth could suddenly be lost.”  His comments come at a time when many international observers already accept the inevitability of China overtaking the US as the world’s largest economy. Within China, many Communist party leaders speak about the superiority of “socialism with Chinese characteristics”, as shown by its apparent resilience in the global financial crisis.  China’s economy grew 9.6 per cent in the third quarter from the same period in 2009. But many economists are worried about overheating after annual consumer price inflation rose from 4.4 per cent in October to 5.1 per cent last month.

Mr Yu has been influential in Chinese policymaking. Besides his central bank role, he is former head of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. His harsh critique reflects a debate among policymakers before a 2012 transition that will see many of China’s leaders replaced by younger cadres.  Joseph Cheng, a professor of political science at the City University of Hong Kong, said many reform-minded scholars were concerned that reforms had stagnated “because leaders are preoccupied with jockeying for position”.  Mr Yu described a lack of innovation and creativity as the economy’s “Achilles heel”, and lamented the inefficient use of capital.  “Some local governments are literally digging holes and then filling them in to ratchet up the GDP,” he wrote. “Consequently, there are simply too many luxurious condominiums, magnificent government office buildings and soaring skyscrapers.”

While most of his observations have been expressed before, it is unusual to see such complaints from a senior establishment scholar in state media. His comments included a call for political reform to help “break the unholy alliance” between government officials and business people. “Under China’s current institutional arrangements, meritocracy is a prerequisite for good governance, but meritocracy has been eroded by a political culture of sycophancy and cynicism. Once again, the dialectics of economic development has brought political reform back to the fore.”  If China could not change the current system of “capitalism of the rich and powerful” and reduce the widening gap between rich and poor that was “fomenting social tension”, then “a serious backlash is brewing”.

Reference : The Financial Times, Dec 24th 2010

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