I didn’t ask the question, The Global Times did in an interview with Professor Xu Xiaonian of the China Europe International Business School. This is one of those surprising articles where you wonder how the propaganda people let it get through.
I don’t want to get into the argument again of whether China faces a coming collapse or perpetual prosperity, as there is no answer. But I do think Xu’s remarks are interesting because they are coming from a Chinese economics professor and not a columnist in London. He can’t be dismissed as some outside meddler who doesn’t understand China. I enjoyed his pithy, no-nonsense outlook:
Let us first assume that those numbers are real and the economy is indeed recovering. I believe that the excessive credit supply of last year and the extremely loose monetary policy both resulted in recovery, which I regard as the result of squandering money. Whether the effects of squandering money will last depends on the government’s decision on whether to keep throwing money about.
Needless to say, squandering money will definitely stimulate the economy.
However, China’s economy has structural problems that cannot be easily solved by palliatives. Too much investment, too little consumption and purely relying on domestic investment and external demand-driven economic growth will no longer support sustainable development.
Chinese President Hu Jintao has repeatedly stressed the need to accelerate the reform of the economic growth model.
But contrary to our fantasies, squandering money did not change the previous growth model, and it has resulted in the structure of the economy deteriorating further. Blood transfusions and oxygen therapy may make a patient feel better, but the illness is not cured. Toxic water may cure your thirst, but it may still kill you.
That’s pretty eloquent. Like me, he’s skeptical that domestic consumption can dig China out of the hole that the “squandering” is creating, though I often wonder whether China can’t simply keep on squandering and absorbing the blows. That’s what every every other country seems to be doing at the moment. The US and UK and others, however, are spending on credit, while China is spending cash.
Some other choice quotes I enjoyed:
Cantonese like the number eight because they believe the number is lucky. I have no idea why decision-makers in the government like the number eight when it comes to growth figures. What is their logic? Where is their evidence?
…Intellectuals in modern society are required to be physically and mentally independent. Our goal is to discover truth and to publicize it. We as economists should have nothing to do with interest groups, governments or ordinary people. We should never fawn on authorities or kiss up to the public.
That is how we should behave. However, many Chinese economists nowadays distort their original convictions and moral principles to meet the need of other people.
Nice example of speaking truth to power. This comes via an Economist blog, which is not particularly optimistic about China’s economic future.