Mainland economic growth will fail to meet most predictions as the country braces for bitter but necessary economic reforms, a top mainland academic said yesterday.
"The new government is facing greater challenges. The economic rebound that started in the fourth quarter is now facing a number of constraints," Chinese Academy of Social Sciences professor Yu Yongding said.
Yu was speaking at the launch of the fourth annual plenary conference of the Institute for New Economic Thinking.
The institute is a New York-based think tank and it is the first time the conference is being held in Asia.
Yu said the mainland's gross domestic product would grow at less than 8 per cent this year amid Beijing's tightened monetary policy to dampen inflation and rising home prices.
Most economists expect growth of 8.1 per cent this year, with the exception of Nomura, which has forecast 7.7 per cent.
The most daunting challenges for the economy were rising non-performing loans and excess capacity in various industries, Yu said.
Bad debt and excess capacity have been brought on by years of overinvestment. Over half of mainland GDP, including property purchases, is fuelled by investment.
Yu cited estimates that more than 30 per cent of finished properties nationwide were vacant. Beijing alone has millions of empty homes, reflecting the extent of the overinvestment. In addition to a 20 per cent capital gains tax proposed by the State Council in February, Yu said the government must try to tame runaway home prices by imposing a tax on investors who own multiple properties.
The State Information Centre, the government's leading think tank, said in February that the economy would grow at 8 per cent while fixed-asset investment would surge by 21 per cent.
"The investment ratio [to GDP] will reach 55 per cent very soon, which will lead to further overinvestment and diminishing returns," Yu said.
"Should investment start to shrink, the mainland economy will tumble."
But given its abundant fiscal reserves, Yu said Beijing still had five years to rebalance its economic mix.Topics: China Economy Economic reform GDP