CHINA: High growth unsustainable

From Saul Thomas <>
Date Tue, 30 Mar 2004 10:41:40 -0600

CHINA: High growth unsustainable

Eva Cheng

After achieving an average annual GDP growth of about 8% over the last 
decade under Beijing’s push to restore capitalism, the Chinese economy grew 
at an even more back-breaking pace of 9.1% last year.

But during the March 5-14 annual sitting of China’s rubber-stamp 
parliament, the National People’s Congress (NPC), the State Council 
proposed to lower the target GDP growth for 2004 to about 7%. In doing so, 
the council admitted there were not only nagging supply bottlenecks, but 
phoney elements in the much-trumpeted “investment rush”.

The minister for development and reform commission, Ma Kai, explained to an 
NPC press conference on March 8: “[China’s] share of the global GDP last 
year was about 4%, but we consumed 7.4% of the world’s petroleum, 31% of 
its raw coal, 27% of its steel, 25% of its alumina, 40% of its cement. As a 
result, the supplies of coal, electricity, petroleum and transportation 
were further strained, and other resource constraints worsened.”
Astronomic figures

Ma continued: “Blind investments and duplications of inferior-grade 
constructions [are] getting more rampant in certain industries and regions. 
Investments last year soared [by] 96.6% for steel, 92.9% for electrolytic 
aluminium and 121.9% for cement… these are astronomic figures. While the 
production and sales in these industries remain buoyant, the excessive 
construction has planted the seeds for overproduction. Our concern isn’t 
just over-capacity quantitatively, but also with respect to the irrational 
[economic] structure.”

“Of the 81 iron furnaces built last year”, Ma pointed out, “only six were 
of a sufficiently rational scale.”

Ma described how such resource-gorging, irrational investments will produce 
a vicious chain effect: they further inflate the excesses in fixed 
investments in China, which rose by 26.7% last year, as well as the 
associated excesses in credit supply; they worsen the already strained 
supplies of coal, electricity, petroleum, transportation and other 
resources; which in turn boosts production costs, and bumps up inflationary 
pressure. This process, if unchecked, Ma pointed out, “will take the 
economy on a rough bumpy ride”.

China has been mired in deflation since the 1997-98 Asian economic crisis, 
but its consumer price index, a key gauge of inflation, climbed to nearly 
2% last year. Beijing aims to keep its inflation under 3% this year.

In his March 8 address to the China People’s Political Consultative 
Conference (CPPCC), held March 3-12 in Beijing (which shared some sessions 
with the NPC), delegate Liu Minfu shed light on the reasons propelling the 
investment rush.

Liu said the local “leaders” were largely assessed on their contribution to 
GDP growth and revenue income, thus precipitating a drive to dress up the 
figures to increase these officials’ promotion prospects. The CPPCC is 
essentially ceremonial with just over 2000 delegates, meeting annually at 
the same time as the NPC.

In contrast to over-investments, grain production in China has markedly 
declined for the third year in a row. Liu explained to the CPPCC on March 8 
that the problem was closely linked to the rampant, and mostly illegal, 
acquisitions of farmland in recent years. In 2003 alone, according to Liu, 
China’s farmland has shrunk from 1950 million mu (130.6 million hectares), 
or 1.5 mu per person, to 1851 million mu, thanks to widespread conversion 
of farmland to “industrial parks”.

“The local authorities have excessive and unchecked power to acquire land”, 
Liu alleged. In order to attract investors to their localities, Liu 
continued, many local authorities took over farmers’ land-use rights very 
cheaply — thanks to loopholes in existing legislation — and made them 
available to targeted investors. All land in China is officially owned by 
the state, but rural residents are allocated the “right to use” designated 

Liu pointed out that despite a Beijing-initiated 2003 campaign to stamp out 
such illegal land acquisitions, which then officially numbered 128,000 
cases, only 132 defendants were given a criminal sentence. Another 925 were 
subjected merely to “internal” discipline.

There is no solution in sight. A March 8 report from People’s Net news 
service quoted a recent memo by State Council Premier Wen Jiabao, saying 
that these problems — and the loss of famers’ livelihoods they entail — 
have reached a “horrific” scale.

While Wen referred to the problem of officials’ involvement in illegal land 
acquisitions in his report to the NPC on March 5, he offered no redress. 
But steps were announced to address the so-called “three rural issues” — 
those facing the rural sector, the rural areas and rural residents. Pledges 
were made to protect China’s 900 million rural residents.

Finding it increasingly difficult to eke out a living in their hometowns, 
in 2002 alone 94 million Chinese farmers went looking for work in the 
cities. That number rose to 99 million in 2003. Not all of them will find a 

Even if they do, payment of their wages could be habitually delayed — 
that’s if they get paid at all. Government-owned establishments are among 
the key culprits of delayed (sometimes indefinitely) wages. The NPC was 
told on March 9 that such wages in arrears were estimated at 100 billion 
yuan (A$16.3 billion).

In his March 5 report, Wen promised to scrap all taxes on specific 
agricultural products (tobacco was excepted). This will lighten the 
farmers’ load by 4.8 billion yuan a year. The general agricultural tax is 
also proposed to go in five years, with reduction starting immediately, 
which should leave farmers 7 billion yuan better off. In all, Beijing has 
budgeted 39.6 billion yuan to back such reductions.

In addition, Beijing will divert 10 billion yuan this year from its “grain 
risk fund” to subsidise grain producers directly to stimulate grain production.

As is common in capitalist economies, irrational over-investments in China 
sits side by side with “insufficient demand”. In reality, it is only 
insufficient “effective” demand — demand from those who can pay. There are 
plenty of social needs that are not being met.

To encourage its citizens to consume rather than to save, Beijing plans to 
scale down its issuance of construction treasury bonds by 30 billion yuan 
in 2004, bringing it to 110 billion yuan.
Constitution amendment

The NPC this year was presented with seven reports, which included a 
proposal for 13 amendments to China’s 1982 constitution, which has been 
amended three times previously.

The 1988 amendments gave the stamp of official approval for the private 
economy for the first time, stipulating it should “complement” the 
nationalised sector. The 1993 amendments introduced the concept of China’s 
“socialist market economy” , and in 1999, the private sector was upgraded 
to being an “essential part” of this.

The latest amendments say China will seek to “encourage, support and guide” 
the private economy and that “legal private property is not to be encroached”.

In fact, Beijing plans to promote the non-public sector “vigorously”, 
according to the People’s Daily on March 5, quoting Premier Wen’s report to 
the NPC.

Though the capitalist restoration process and the proposed amendments have 
provoked heated debate throughout China, of the 2903 delegates at the March 
14 voting session, only 10 opposed and 17 abstained from the constitutional 
proposals, allowing them to pass with 2863 votes in favour.

In the budget for 2004, government expenditure will increase by more than 
30 billion yuan to 2676 billion yuan. With only 2357 billion yuan revenue 
expected, a budget deficit of 319.8 billion yuan is forecast.

The NPC was also told that in 2003, Beijing allocated 77.9 billion yuan to 
“guarantee” that the living allowances for workers laid off from state 
enterprises and the old-age pensions for state-employed retirees were paid 
on time and in full, and that the poverty-stricken urban residents obtained 
their subsistence allowance entitlements. The non-payment or much delayed 
payment of such entitlements has been a key cause for widespread protests 
in China in recent years.

It is doubtful how much will reach its rightful recipients, given the 
rampant corruption among officials. Wen recognised this in his March 5 
report, saying “some government officials” have a “subjective, formalistic 
and bureaucratic style of work” and are “wasteful, extravagant and 
fraudulent, and even corrupt”. He presented no solution to the problem.

Some 17 billion yuan is allocated as subsidies for enterprises that are 
closing or go bankrupt due to “economic restructuring” (read: 
privatisation). China’s military expenditure for 2004 is budgeted to 
increase by 11.6% over 2003 to 207.1 billion yuan.

 From Green Left Weekly, March 24, 2004.