The Chinese economy registered another year of robust expansion in 2005. Compared with the 10 per cent growth rates recorded in 2003 and 2004, last year's 9.9 per cent showed that measures to rein in the economy have achieved modest success. Continuing double-digit growth would have strained the mainland's ability to develop at a sustainable rate and increased the risks of overheating and overcapacity. Looking ahead, a major challenge that continues to test the central leadership is to ensure the economy will grow at a steady pace. That task will not be easy. Last year, investment was responsible for 48.8 per cent of growth, consumption 33.3 per cent and trade 17.9 per cent. This shows the mainland remains highly dependent on investment as the driver of growth, making it vulnerable to the risks of overcapacity. As Li Deshui , head of the National Bureau of Statistics, pointed out, overcapacity could lead to a fresh crop of bad loans, a serious waste of resources, bankruptcies and rising unemployment. Over the past two years, the leadership has moved to cool down the economy by suppressing speculative investment. The measures have forestalled a hard landing for the economy for the time being, but the danger remains as there is serious overcapacity in such industries as steel production, auto manufacturing, aluminium smelting and coal mining. A more balanced growth formula for the mainland would be to increase the contribution of private consumption as the foundation of growth. With 1.3 billion people, the mainland is a huge market for local and foreign businesses. Unfortunately, regionalism is so strong that a big national market can almost be dissected into blocs that are virtually closed to operators from other regions. The provincial authorities have a long way to go in pulling down barriers to interstate commerce. Another major obstacle to encouraging private consumption is mainlanders' high propensity to save. As economist Lawrence Lau Juen-yee, vice-chancellor of the Chinese University, has pointed out, the mainland's high savings rate has much to do with the lack of a dependable social infrastructure. People have to save for medical care, retirement, housing and their children's education, as most are not covered by health insurance or pension schemes, and both property ownership and university education are expensive. The authorities are taking steps to develop affordable programmes in health care, housing, retirement protection and education. But it will be a long time before most mainlanders could feel comfortable about spending the money they have stacked away in bank accounts. The mainland economy is now valued at US$2.25 trillion, making it the fourth-largest in the world after the US, Japan and Germany. The figure has to be interpreted with care, however. Because of its big population, the mainland's per capita gross domestic product is just US$1,700. That puts it after the 100th mark on the wealth league. Besides, wealth is far from evenly distributed. The rural-urban gap remains huge. Last year, per capita disposable income in urban areas, where two-fifths of the population resides, rose by 9.6 per cent in real terms to 10,493 yuan. In the rural areas, the growth rate was a modest 6.2 per cent, taking average income to just 3,255 yuan. Mr Li admitted that it would be difficult to raise farmers' incomes this year, although boosting rural incomes remained a top priority of the central government. The leadership has realised that the heavy dependence on investment-driven growth is unsustainable, and has called for the adoption of an alternative growth model with a stronger emphasis on quality than quantity. The reorientation is long overdue. The challenge lies in changing the mindset of local officials. Most of them still have a single-minded focus on building more factories and plants, as opposed to investing in existing operations to make them more efficient, and in education and health care to make the people more productive.