What Are the Real Problems of China's Economic Growth?

Does China still need further investment?

The documentary says that China's investment-fueled growth model is unsustainable, that the problem is indeed a massive one. For China and its 1.3 billion-strong population, it is unsustainable for its economy to grow if huge investment is introduced in a long-term manner. The level to which China's transition from an investment-driven economy to one that is driven by consumption will be what decides the future of China's economic growth in the mid- and long term.

The documentary also states that the total government investment of Wuhan over a few years is equal to that of one year in the United Kingdom. Meanwhile, problems such as industry over-capacity and high vacancy rates in the housing market also exist. The documentary says if such huge investment numbers continue to fuel China's economy, then the debt borrowed from China's banks will be unsustainable. However, this opinion doesn't take into account the per capita capital stock of China. Research shows that in 2010, the total capital stock of China was 93.3 trillion yuan ($13.8 trillion), compared to $44.7 trillion for the U.S. at the same time. The difference between China and the U.S. is greater if we calculate this figure on a per capita basis, with China's per capita capital stock at around $10,000, less than 10 percent of that of the U.S. Even if China becomes a middle-income country, there is still a huge gap for China to bridge as the uneven economic development of various regions throughout the country remains an issue. Many fields in China, such as the public health sector, still need investment. As such, if China stops investing, there is little doubt that the results will be catastrophic.

The problem doesn't lie in investment alone; the issue China faces is whether or not investment and consumption can achieve a dynamic equilibrium.

China's strength from reform

Another reason that this documentary came to such an uninformed conclusion is because it ignored the strength that China gains from the transformation of its economic development model.

The proposed economic reforms are expected to make major breakthroughs as the measures introduced by the Chinese government over the past two years are unprecedented. Some of the major changes include more streamlined administration processes and the delegation of power to lower authorities; the breaking up of monopolies in sectors such as telecommunications and railways; and the establishment of a rent collection system from the country's state-owned enterprises (SOEs) - all property owned by SOEs belong to the general Chinese public, so the SOEs need to pay rent - and forcing the SOEs to submit a higher proportion of their profits to the country. In the non-public sectors of the economy, private capital is being stimulated as some taxes and administrative fees have been reduced or exempted, with administrative approval reform accelerating. In addition, measures such as interest rate liberalization and the creation of privately-owned banks will lead to substantial changes in the financial sector. The government also plans on introducing price reforms in the energy (natural gas, coal) and natural resource (water) sectors in a gradual manner.

It is a consensus that China's reform is running together with risk. The documentary addresses acute problems in terms of excessive investment and mounting local government debt, issues that have been discussed and researched exhaustively. China is now taking the necessary reform measures to address these problems. If the documentary cannot see this, then the conclusion it arrives at is by no means objective or complete.

The author is the director of the Research Center for Economy at Hainan's China Institute for Reform and Development.

This article is written in Chinese and translated by Vanisa Wei.