Why Can't China Seem to Stop Worshiping the GDP?

China's gross domestic product (GDP) in the first half of 2007 increased by 11.5 percent over the same period last year.

Meanwhile, the nation's inflation rate far exceeded the three-percentage point threshold set by economists. The prices of people's daily necessities, especially grain, pork, housing, and vegetables, rose at a pace much higher than the inflation rate announced by the government. Even in developed areas, such as Shanghai, people worried about inflation and have recently rushed to buy pork and other food.

However, the Chinese government is still unwilling to acknowledge the overheating of its economy. The CCP only alluded to the possibility in the official statements of achievement by saying that it is important "to prevent the economy from going slightly too fast or overheating."

The fact that Beijing does not acknowledge the overheating of its economy and is unwilling to take effective measures to stop it is a direct reflection of many years of the government's worshipping the GDP. The central government is not alone in worshipping the GDP; the local governments seem to be even more eager for rises in the GDP.

The National Statistics Bureau told local governments to stop reporting their regional GDP figures long ago, yet the secret ambition of local authorities caused them to keep publishing the increases in their GDP's to show off their achievements. As it turned out, the figures quoted were over 10 percent higher than those compiled by the central government.

Beijing started to change its development strategy long ago and stopped using development as the sole criteria to assess its cadres' performances. Yet, why didn't the worshiping of the GDP at both the central and local levels cease to exist? In my view, there are three reasons.

First, are the economic and social pressures. China is a developing country. Under the planned economic system from the 1950s to the early 1980s, man inhibited urbanization, and a flawed population policy was implemented. Thus, the extent of urbanization and China's level of economic development are now out of balance. Since the 1980s, the adjustment of the nation's economic structure has added to employment pressures in the cities.

Meanwhile, there is an excessive labor force in rural areas that is just waiting to be employed. Viewed from this reality, economic growth is the only way to ease employment pressures, and avoid an eruption of social conflict caused by a high jobless rate and widespread poverty. So the urge to push up the GDP is understandable.

The second reason is the illusion of a strong nation. China has long been a backward state in the world due to centuries of outdated systems and corrupt officials. The Chinese people naturally hope that China will become a strong nation, and this dream has inspired countless idealistic people to fight for the country's prosperity.

However, the present government in China does not want to introduce the Western system, and is thus unable to achieve breakthroughs in system or culture. Under such circumstances, achieving growth of the GDP, despite the cost, becomes the only way the regime can solidify its legitimacy to the people it rules. Thus worshipping of the GDP has turned into a sleight of hand that maintains the illusion of a strong state.

It is not hard to imagine that the existing regime would be worthless in the eyes of not only the people of the world, but also the Chinese people, if there were no such GDP increases. So, this is an important reason that Beijing does not dare to stop worshiping the GDP.

The third reason is related to economics. The true costs of China's economic growth have not been fully revealed. Behind each percentage point of growth lie enormous social, environmental, and resource costs. The state monopolizes the prices of resources and important raw materials, so the unfettered economic growth has seriously damaged the environment. This information and the harm that has been done to the public's health have not been revealed to the people. The cost of China's growth has been understated.

Thus, it's logical that if investors were asked to realistically reveal the cost such as the damage to the environment and wholesale consumption of resources, they would not be able to get the high returns, and they would not have had the strong urge to invest in China as they have now. Then, growth of the GDP in China would naturally slow down.