Mainland authorities are under growing pressure to further clamp down on the excessive liquidity and easy bank lending which led to the economy growing at a blistering rate of 11.3 per cent in the second quarter.
Many economists have urged the central government to revalue the yuan faster, again raise commercial banks' deposit reserve ratios and interest rates, and strengthen administrative tightening measures. But that cocktail of economic and administrative tools would not be as effective as expected and could provide only short-term help.
For China to achieve its long-touted goal of balanced and sustainable economic growth, the authorities must undertake drastic reforms to shift the growth pattern from one relying on export and investment expansion to one increasingly driven by domestic demand and consumption, as is promised in the 11th Five-Year Programme (2006-10).
One key test of the mainland leadership's resolve lies in its determination to push ahead with long-delayed reforms to tackle the serious price distortions in the economy and allow market forces to run their due course.
To put it simply, the central government must raise the salaries of workers and civil servants to boost domestic demand and sharply increase the prices of raw materials, land and energy, as well as impose and increase taxes and charges for environmental damage. There is no better time than now to make those changes as the economy is growing strongly and China's integration into the global economy is accelerating rapidly.
For the past 20-odd years, the nation's phenomenal economic growth has been fuelled by cheap labour and ridiculously low energy costs. For the sake of social stability and economic growth, the prices of electricity, water, coal, oil, and transport have long been depressed. Although in the past year or so the authorities have raised the prices of electricity, water and other energy prices, they are still much lower than those of the international markets.
As a consequence, those factors figure little in the economic and business expansion plans of authorities and businesses. This has led to many ill-planned, energy-consuming and resource-wasteful projects, which pollute the country's fragile environment.
