Editorial: China acts on controlling growth
Published by The Straits Times, Singapore on 2004-10-30
NAPOLEAN Bonaparte went to many places, most famously Russia where he got his comeuppance, but he never went to China. Nevertheless, what he said about the Middle Kingdom two centuries ago still resonates: "China? There lies a sleeping giant. Let him sleep! For when he awakes, he will move the world." In the economic sense, at least, China isn't only awake, it's roaring to the point where its US$1.5 trillion economy - the world's fourth largest after the United States, Japan and the European Union - consumes more than half of the global output of metals and raw materials to sustain an annual growth rate of 9.2 percent. In a land of 1.3 billion people, that kind of growth should be cause for guzzling plum wine and clinking chopsticks. There's cause instead for deepening worry: the inflation rate is 5.2 percent and rising. The income gap between rural regions and urban areas - such as Shanghai and Beijing, the main beneficiaries of economic prosperity - is widening because much of China's economic growth has been in real estate and manufacturing. Prospects for social tensions in the relatively neglected western areas are growing. Foreign investors, salivating over growth of Chinese exports from US$485 billion in 2003 to a staggering US$611 billion this year and a trade surplus of US$550 billion, want to pour in even more than the US$53 billion that they currently do each year. But they don't seem to want to take their money to the vast hinterland, where investment is genuinely needed.
The Chinese authorities need to once again accelerate their efforts to control this economic growth, which is simply unsustainable. Back in May, recognizing the danger of economic overheating, they clamped down on banks that had been recklessly lending to the construction industry, the so-called fixed-asset sector which, at US$800 billion, already accounts for almost half of China's GDP. By requiring banks to raise their internal capital reserves and improve the quality of loans, China took a wise step; the authorities were in effect calibrating monetary policy through the banking system rather than by the riskier step of increasing interest rates, which would have hurt ordinary consumers. But somehow, the enforcement of tough measures concerning the banks slackened around last September's meeting of the Communist Party. Such is the sheer momentum of the Chinese economy that the growth rate could easily move into double-digits unless the authorities apply brakes once again on the construction business. And the only way to control inflation is to drastically curb the appetite of the manufacturing sector. That will not affect the consumer boom; it will merely shepherd it more prudently.
Senior Writer and Global-Affairs Columnist