China is drinking from tainted economic waters
- Source: Global Times
- [22:04 June 11 2010]
- Comments
NE: Some people say that if the government suppresses the property market and increases the interest rate, China's economic growth will be reduced. High unemployment rates and business failures will occur. What do you think of these worries?
Xu: This argument is unfounded. 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?
The key to full employment, as President Hu has said, is to reform the economic growth model. How many jobs are we eventually creating by building railways, highways and airports? I need reliable data and analysis. How many jobs are we eventually creating by investing in the heavy machinery manufacturing industry, the automobile industry and the iron, steel and cement producing industry? These industries are all capital-intensive industries that require a highly automated production process. You must reform the development model to solve the employment problem in China.
After China's economic transition to service-related industries, China's economy may not need a GDP growth rate of 8 percent. Five percent would be sufficient to achieve full employment.
If we consider the problem with an eye to development, reform and the transformation of economic growth, the obsession with 8 percent growth is not justified. We can certainly achieve full employment without a high GDP index.
NE: What is the biggest source of resistance in promoting the next stage of development?
Xu: The source of resistance now is the government itself. The government has become the biggest interest group in the market.
All reforms require the circulation of interests, and the greatest interest group now is the government.
NE: Will China follow Greece into debt crisis?
Xu: It's extremely likely. China is not likely to become another Greece at the moment, but if the problem continue, China certainly will be. We are going to discover hundreds of little Dubais around the country and many local governments will go bankrupt. I assume that many local governments have already gone bankrupt, and the problems should have been revealed earlier.
The central government is very worried about the issue. They believe that under such circumstances cleaning up the mess is of the most priority. However, cleaning-up must result in the rearrangement of vested interests. I think it will not be easy to practice such actions. Keynesianism damaged Greece once and it's going to damage China if we don't act quickly.
NE: What do you think is the most serious problem with Chinese economists?
Xu: The most serious problem among Chinese economists is that they are not really into their fields of research. They are not into using practical problems to study theoretical problems.
The highest ideal of ancient Chinese intellectuals was to pass the examination offered by the authorities. As a result they would be officially appreci-ated by the emperor and be promoted to better positions. However, the demands on intellectuals in modern society are obviously different to the ideals of our ancestors.
Intellectuals in modern society are required to be physically and mentally independent. Our goal is to discover truth and to publicize it. We as econo-mists 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.
We can never reveal the truth if we are not independent. Imagine if Copernicus had gone along with the Catholic church, and we still thought that the sun went round the Earth.
