Opinion | China must resist 'miracle' of state-led growth
Hu Shuli says officials who are trying to rev up a sluggish economy with mega projects only take the nation further from its goal of sustainability
In the face of a lingering economic downturn, China has made steady growth its top policy goal. Notably, the thrust of the government's macroeconomic policy is entering a new phase: the question now isn't whether stimulus is necessary, but what kind of stimulus and how much is needed.
This policy stance is striking in two ways. First, many economists have warned about the adverse consequences of the last round of stimulus, and the government this time has rightly rolled out more restrained measures. Second, authorities have stressed that growth targets must go hand in hand with economic reforms. This is a sound, fact-based approach.
But what's worrying is that some local governments don't seem to have got the message. A significant number have put the focus of their economic plans on big-ticket development projects, apparently hoping to invest their way into a growth surge. To this end, they are building up the financing platforms that state-owned investment groups rely on.
Estimates of the total amount to be spent have ranged from 7trillion yuan (HK$8.6trillion) to a whopping 15trillion yuan, numbers far exceeding the 4-trillion-yuan stimulus package introduced in 2008 in the wake of the global financial crisis.
Using government-led investment to spur growth goes against the intent of market reforms; it isn't up to the government to shape the economic structure. In an exhibition for its project plans, one local government even used the image of a rocket, and likened itself to a launcher, the market to a booster and technology to an accelerator. This faith in government-led growth is typical of the outdated mindset favoured in the old model of development.
Today, the government has pledged to take a different, scientifically sound path to development. But the economic downturn has given some local governments an excuse to package old wine in new bottles.
While claiming to be exploring a new growth path by "increasing industry concentration", these governments are starving small and medium-sized enterprises so more resources can go to the big projects and big companies. And, in the name of improving regulatory control, the governments promote the mega projects of state-owned enterprises, leading to the formation of production chains that deter competition and bar private enterprise from getting a foot in the door.