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A portrait of the economist Larry Lang, taken near his residence in Shanghai, China, in September 2006. (Mark Ralston/Getty Images)
Recently, Hong Kong economics professor Larry Lang (Lang Xianping) had some accurate comments about the current economic situation in China, pointing out that China is essentially bankrupt. However, he was not willing to link the responsibility for the economic situation to the political system, and thus was unable to provide a realistic prescription.
Nevertheless, the situation he described according to the surveyed data is indeed the real picture of China’s economy. The data may seem like exaggerations; in fact, they are not. Not only is the data true, but long ago, a lot of the information had already been haltingly delivered by other experts who are familiar with the matter. The reason that professor Lang’s comments produced a sensational effect is because he dared to voice conclusions that others have not dared.
Irrational Structures
One of his important conclusions is that the Chinese economic structure is extremely irrational and very deformed. During his closed-door speech in Shanghai last October, Lang pointed out that the Chinese people’s total consumption is a shocking 8 percent of the total GDP (Gross Domestic Product), even lower than the least developed African nation at 16 percent.
During his Shanghai lecture, he also pointed out that 70 percent of the GDP is used in construction and related industries. The words professor Lang used were “to produce reinforced concrete.” That leaves only 30 percent for all the Chinese people across the country, and most of that is exported in exchange for foreign currency.
Chinese officials have already transferred their wallets, their wives, and children to other countries that are governed well.
Most of that 30 percent went into the pockets of corrupt officials and both Chinese and foreign capitalists. Thus, the 1.3 billion Chinese people could only consume that mere 8 percent of the GDP—a living fraction lower than that of Third World countries in a nation that is known as the world’s second largest economy.
The two irrational structures—the minimal public consumption and the excessive construction—are the root cause of unsustainable development in China, as well as the root cause of most social conflicts in China. Not only is China’s economy not sustainable; its politics is unsustainable as well.
So, regardless of whoever is in power, whether the Communist Party dictatorship or a democratic replacement, that government must change the economic structure, making the whole and each detailed part more reasonable. Then, the development of China and the Chinese people’s living standard could be on the right track, the society could be in relative harmony, and politics would be relatively stable.
Otherwise, intense social and economic conflicts will inevitably lead to the collapse of the government and to social unrest.
Increase Domestic Consumption
How to change to make it reasonable? Let us examine the problems first. The two irrationals pointed out by professor Lang—minimal consumption and excessive construction—are in fact two aspects of one irrational policy.
From one perspective, the peoples’ consumption is too low, which results in a small domestic market. From another perspective, the government invests most of the money in real estate projects for high profit, meanwhile holding down the exchange rate in an effort to dump consumer goods, which could be used domestically, in the international market.
Some of the foreign currency gained was used for foreign goods in an attempt to increase consumption, mostly among the wealthy, but that was just a small fraction. This profiteer-type development strategy, like fishing by draining the whole pond, is the root cause that leads to deformities of the economic structure. This is the mercantilist strategy, as it is very politely referred to by international media and scholars.
