With the outbreak of the global financial crisis, four major areas of inconsistency in China's economy have come to the surface. Of the four inconsistencies, the imbalance between foreign and domestic trades, and that of investment and individual consumption are most evident. Economic analysts have pointed out that if China's economy is looking to follow a statistically sustainable path of growth and development, then it needs to pay special attention to resolving these four major areas of economic instability.

Photo: erniu.net

Hong Kong’s “Economic Weekly” collaborated with the Institute of Economic Studies of the Chinese Academy of Social Sciences (CASS) and the Capital University of Economics and Business in holding a 'Periodic International Panel of Discussion 2009 – The Growth of China's Economy'; during which, hundreds of economic analysts from all around the world participated in the panel, discussing, “global economic unrest and China's choices of strategy at sustaining its economic growth.” Mr. Zhang Zhuoyuan, former director at the Institute of Economic Studies of CASS talked with us more about the specifics that were discussed.

Mr. Zhang explained that China's economy had seen a double-digit growth in five consecutive years between 2003-2007, and has in turn accrued a mound of inconsistencies and problems inherent therein; the four major ones are listed and explained as follows:

1. The imbalance between foreign and domestic trades, with the domestic market still too small. Foreign exchange and importing and exporting of services still accounts for too much of China's economic development; and as such, should the foreign trades diminish, the economy will be single-handedly affected.

2. The imbalance between investment and spending, with consumer spending, especially that of individual consumption, falling far too short. In the recent years, there have been attempts made at trying to boost consumption at home, but in reality, the boost is only seen in the investment sector, with the consumer spending falling still short.

3. There is a huge debt in the depletion of resources and environmental damage to be paid with the exponential growth of economy. Again, natural resources and environmental concerns are still crucial issues to resolve when it comes to sustaining the growth of China's economy.

4. The imbalance between developments and growths of cities and the countryside, and especially the social instability created thereof. As early as 2003, this problem had been brought to the attention of those discussing the sciences of an economic growth, yet we still have yet to see real results in this sector five years later.

Mr. Zhang also further explained that in order to resolve the four major inconsistencies in Chinese economy mentioned above, it is especially pivotal that we tackle the first two imbalances first and foremost – only when the economy has taken a more favorable turn of balance will the rest follow suit. Secondly, in order to tap effectively into the domestic trade for a more

sustainable growth of economy, we need to find the right method at adjusting between markets. Thirdly, a more aggressive administration of financial plans and a relaxed control on foreign exchange to encourage trade should be coupled with a deeper run of administrative reforms. Fourthly, we should look to start financial as well as social reforms by completing a shift of financial responsibilities to the public. Fifthly, we should look to reform the government and better its functions in general. Sixth, we need to take viable measures to improve earnings of those with incomes of and below average, so that they may have more spending power; and put into effect social reforms such as an increase of governmental subsidies in medical programs in the under-developed countrysides. Seventh, we need a better infrastructure in administering the above reforms.

Right now, the case is that provinces and autonomous regions administer their own reforms, with a lack of a federal control from the central government. Thus, as a result, the statistics for economic growth pan out more favorably when added from region to region, when in fact the overall statistic as a country is not so favorable and at a much slower growth. Mr. Zhang suggests that a two-tier administration infrastructure would be a better start, with first setting down a financial plan at the federal level and have it pan out across and integrate into province level, city level and then regional level reforms – in this way there is a system of consistency in place when it comes to administering reform. Of course, there should also be a strong system of supervision methods from the central government to oversee the reform practices, so that the reforms don't turn into just formalities on paper.

Read the original in Chinese here

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