Challenges for the Chinese Economy Concerning Stable High Growth


There are two main points concerning the development of Chinese companies since reform and opening up began. One is the fact that, because China was economically undeveloped for a long time, sufficient market demand is supporting economic development. The other is the fact that low costs are backing this up. In the latter half of the 1990s, the Chinese economy had already turned from a shortage economy to a surplus economy, demand fell, China encountered the fact that its initial challenge, i.e. the shortage economy, had disappeared, and many companies were weeded out However, due to the existence of low-cost factors and the fact that China became more integrated with the global economy, the Chinese economy still maintained its high growth levels. With regard to the initial challenge, the extensive economy growth formula has not changed at all. Currently, the second challenge facing the Chinese economy is the necessity of transforming the extensive economy growth formula in the era of high costs.

Production costs are soaring. Extensive growth in industrial production has been the main driving force, with fixed asset investment by both the government and the private sector, such as building construction and capital investment, growing significantly. Large amounts of resources are required for this growth. China has entered the age of limited natural resources, and the degree of its dependence on other countries for imports of such factors as raw materials and energy is increasing annually. In 2003, the quantity of iron and steel used by China was 260 million tons, accounting for 36% of global iron and steel production (720 million tons), and the shares of coal and cement are also enormous, at 30% and 55% respectively. The growth in electricity demand has also surpassed the quantity of electricity generated and there is pressure on electricity demand and supplies in seven provinces, including Zhejiang Province, where there are many foreign-invested companies.

Looking at total GDP, China accounts for just 3.3% of the global total, but at the same time, the large-scale consumption of resources is indicative of poor efficiency and qualitative problems. Poor efficiency does not only have an impact on production efficiency, but also leads to further destruction of the already deteriorating environment. At present, the burden on China’s ecology and environment is nearing its limit and the cost of improving the environment is rising. The costs of social stability and development are also soaring. In 2003, per capita GDP exceeded $1,000. This signifies that China’s economic and social development surmounted a new “barrier”. At this point in time, there is a significant possibility that the problems that have occurred in economic growth will intensify social discrepancies. Examples of such discrepancies include widening income gaps, high unemployment rates, and serious corruption problems. Compared with the overheating cities of the coastal region, rural villages in mainly inland areas still suffer from low incomes and a serious situation is becoming apparent. In 2002, the income gap between cities and rural villages was 2.8 times, but in 2003 it expanded to 3.5 times. There seems to be no end to the number of farmers moving to the cities because they are no longer able to bear their low incomes. In order to achieve balanced development, there is a pressing need for measures to increase incomes in rural villages. Furthermore, there are 150 million unemployed people in Chinafs rural villages, and there is the problem of re-employing the more than 11 million unemployed in the cities. Such problems in turn lead to the problem of social instability.

In order for China to aim for continued, stable growth in the future, it should switch to sustainable growth that emphasizes improved efficiency and quality, rather than focusing on quantitative expansion, and should learn from advanced nations, with regard to such aspects as technology and institutions.

[Translated by ERINA]