China has a boom in ‘get rich quick’ schemes, instead of the economic reform it needs

The Chinese government has been promoting the slogan “All People Innovate, Tens of Thousands Start Business”. Tens of thousands of youth, especially college graduates without good job prospects, but armed with their parents’ savings, have answered the call. This movement is becoming a bubble with tragic consequences down the road.

Starting a business is hard. Innovation is harder. There are few who have the talent or temperament to succeed in either. For fresh college graduates, their odds are next to zero. In a battlefield, officers can send unarmed green soldiers to rush a hill defended with machine guns. One or two might succeed. But it doesn’t justify sending 99.9 per cent to their deaths.

The start-up mania won’t solve China’s economic difficulties. The economy has been in the doldrums for four years because the government is not addressing the structural problems. The truth is that the investment and export-led model has run into a brick wall; the world is just not big enough for China to develop like Japan or the Asian tigers. The only way out is to scale investment down to 30 per cent of gross domestic product from half, and shift spending power to the household sector.

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China’s needed reforms are not coming because they conflict with the political doctrine of concentrating economic power in the state sector. Hence one bubble after another has been stoked in the hope that a miracle would happen to the economy without the need to shrink the government. So many have been sacrificed in these bubbles while the economy slides deeper and deeper into quagmire. In the name of looking at the upside, shady or even unlawful practices have been overlooked, leading to huge losses for the credulous masses.