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Buildings radiate out from the central business district in Beijing, photo taken in January 2011. Economists question whether China’s political system can turn state funded investments and projects into growth. (Liu Jin/AFP/Getty Images)
Amidst sluggish growth, the Chinese regime is anxious for solutions to stimulate the economy. Large numbers of state funded investments and projects have been approved, but scholars and economists question whether the country’s political system can turn them into growth.
According to reports, Credit Suisse Group AG and Deutsche Bank AG have decreased their growth estimates for China’s economy—the former from 8 to 7.7 percent, and the latter from 8.2 to 7.9 percent. China’s GDP growth in 2011 was 9.2 percent.
Hong Kong-based Credit Suisse economist, Tao Dong, was quoted by Bloomberg as saying that investment is unlikely to produce a meaningful rebound of China’s economy in the foreseeable future. Government stimulus could moderate the downslide, “but we do not see it providing sustainable upward growth momentum,” Tao said.
Tao’s recommendation is that the Chinese regime should instead break up the banking and utilities monopolies, open the services industry, and deregulate interest rates and the exchange rates.
Other than a recent interest rate adjustment, the Chinese regime’s National Development and Reform Commission sought to recover the economy with large arrays of state funded projects. From January to April, more than 8,000 government projects have been approved.
Corruption
But Chinese scholars doubt that these projects can succeed, not least because of China’s political system and rampant corruption among government officials.
U.S.-based Chinese writer and economist He Qinglian, in one of her recent columns, said corruption is a big loophole with government investments, with a lot of funds getting lost in the process.
“In China, 20 to 30 percent of investments usually goes to individuals and government organizations who work on them,” she said. “Officials use political power to bribe one another to get more benefits. This is the cause of those unstable school buildings that collapsed during the 2008 Sichuan earthquake.”
In Hunan Province alone, around 10 billion yuan (US$1.5 billion) allocated to highway construction end up in the pockets of party cadres every year, according to He.
State-Owned Enterprises
Dr. John Lee, an adjunct associate professor at Sydney University, said in a recent Bloomberg piece: “Even though China has been growing at close to 10 percent since the early 1980s, inequality [of wealth distribution] took off from the mid-1990s onward—a period that coincided with the dramatic increase in fixed-investment activity by state-owned enterprises (SOE).”
Inefficient SOEs and projects contribute greatly to China’s non-performing loans. According to Economic Information, local government debts in the amount of 1.84 trillion yuan are due in 2012.
Economist Cheng Xiaonong told The Epoch Times in a previous report that state-owned banks are the Chinese regime’s wallet. The banks are obliged to pay the government’s debts if asked, and the outcome will be rising inflation and more hardships for the people, Cheng said.
The World Bank ranked China’s per capita GDP as the world’s 118th in 2010.
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