Fixated on fixed assets
A middle-aged local government official kissing a document outside the mainland's top planning agency has been among the most popular online pictures in the past few days.
The picture, showing how ecstatic the official, Wang Zhongbing, was at receiving approval from the super-powerful National Development and Reform Commission (NDRC) for a steel plant project in Zhanjiang, Guangdong province, caught the public's eye. It was a reminder of the increasingly important role of economic planners, and of China's excessive reliance on investment - sometimes to problematic industries - to combat an economic slowdown.
Wang, deputy party secretary and mayor of Zhanjiang, raised the NDRC approval document above his head on May 24, posing for a local party newspaper which dedicated seven out of its 16 pages to celebrating the realisation of a '34-year-old dream'.
The steel project, with a projected investment cost of 69.68 billion yuan (HK$85 billion), is expected to have annual output worth 200 billion yuan, doubling local gross domestic product and creating employment for 70,000 people, or one per cent of the local population, according to the Zhanjiang Daily, the local party mouthpiece.
Zhanjiang officials first dreamed of the project in the 1970s. About a decade later, the Guangdong government submitted a construction application to the central government. But the project was then shelved for more than 10 years as Beijing decision-makers decided there was already overcapacity in domestic industry. Efforts by Zhang Dejiang and Wang Yang, the former and serving party secretaries of Guangdong, helped revive the project later. But when it was just getting started, the global financial crisis hit in 2008. Concerned at slumping world demand, China called a halt to the project, the local paper said.
With mainland economic growth cooling faster than expected in the first quarter, to 8.1 per cent year on year, Beijing has shifted its stance from combating inflation to focusing on 'stabilising economic growth'. Given that exports are unlikely to turn around soon, and domestic consumption is not expected to grow strongly, investment is a quick and easy solution to driving growth.
However, this solution has its critics, who say its long-term disadvantages often outweigh the benefits.
'Using investment to boost the economy is basically a dead-end street,' said Wang Xiaolu, deputy director of the National Economic Research Institute, China Society of Economic Reform.
'As more investment is made, overcapacity will become more severe, efficiency will fall and economic structures will become more out of kilter,' Wang said.
The Zhanjiang plant is among more than 200 investment projects the NDRC approved last month. The increasing power of the top planning agency again raised eyebrows, generating concerns that China is reverting to a planned economy.
The NDRC dates back to 1952, when its predecessor, the State Planning Commission, was established to manage the economy. As the system ignored market forces, supply shortages and black market dealings were pervasive. Oil, grain, meat and other daily necessities were supplied on a budget. In 1998, under the helm of Premier Zhu Rongji, the commission's power was reduced to economic strategy, instead of intervening in production, sales and every aspect of microeconomic activity. In 2003, after Premier Wen Jiabao took office, the commission took on new roles of overseeing economic restructuring and reform, leaving the 'planning' out of its name.
While the Zhanjiang officials have hailed their steel project as a triumph, many observers are worried that it could spell problems in a few years. Mainland raw-steel output totalled 900 million tonnes last year, 46 per cent of world capacity. In a bid to ease expansion and maintain profits, Beijiing asked for a three-year freeze on new projects in 2009.
Despite capacity-reduction efforts and the new three-year ban, the mainland's steel industry reported a record loss in the first quarter of this year. The iron-and-steel industry's combined net losses totalled more than one billion yuan in the January to March period, according to China Iron and Steel Association, a national industry federation.
'The concerns are justified. The economic slowdown is a little fast, but economic restructuring is more important,' said Ma Guangyuan, an economist at the Chinese Academy of Social Sciences.
Beijing has vowed to restructure the economy by reducing reliance on investment and focusing more on consumption after its four trillion yuan stimulus package to battle the global financial crisis in 2008 left the nation with some flashy new infrastructure, luxury office buildings and other white elephants - and left banks with a surge in bad loans.
But while top officials have officially declared that the development model is unsustainable because it leads to too many power plants or steel mills or other facilities spewing out pollution, the development model is dusted off whenever GDP growth is under pressure and local governments are looking for a saviour.
Professor Xu Xiaonian at the China Europe International Business School said in his microblog that the fast-tracked project approvals seemed to be a repeat of the government's strategy in 2008.
'Using up taxpayers' money and imposing a heavy burden on banks by asking them to lend are aimed at dressing up short-term performance. The official kissed the approval paper because his position and pocketbook were thus secured,' Xu wrote.
The approximate number of new projects that were given the green light for investment by the NDRC last month