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In a new book, "Where Is China Headed?", Zhou says China could be heading for a political car-crash unless it reduces bloated government, unshackles small business and ends distortions in the housing market.
31 Aug, 2010, 04.33PM REUTERS
Bears bet time is running out for China to change
BEIJING: Three numbers should suffice to give Chinese economic policymakers a sleepless night: 65.4 million, $28.7 billion and $2.45 trillion.
In order, they are the estimate by a government researcher of how many apartments stand vacant in China, many of them bought as speculative investments; the country's trade surplus in July; and the international reserves the central bank has accumulated by buying dollars to hold down the yuan.
Together, they encapsulate the distortions of an economy that favors investment by suppressing the cost of capital and other inputs at the expense of consumers, whose spending power is held down by low wages and low deposit rates.
Unable to sell at home all that it produces, China exports the rest.
This template has powered 30 years of headlong growth that is catapulting China past Japan to become the world's largest economy after the United States.
But it is a formula that Beijing readily agrees is unsustainable:
China needs to rely more on household spending, especially as its export prospects are darkening now that the West is tightening its belt to purge excess debt.
Many experts are confident that a pragmatic China will succeed in making the transition in the coming decade to a new growth model anchored by urban-based consumption, technological upgrading and a greater role for market forces.
Doubters, though, have two prime reservations. First, that China has left it too late to wean itself off investment-heavy exports. And second, that the ruling Communist Party will fail to overcome the vested interests resisting reform.
"The imbalances cannot continue at this rate for another 10 years. That's simply not possible," said Michael Pettis, a professor of finance at Peking University.
He said pressure to change could become overwhelming within two to three years, or even sooner if trade conflicts flare up.
"They're embarking on change at a time when the rest of the world may not give them much time to shift," Pettis said. "Over the next decade we're going to see average growth rates of 5-6 percent, heavily frontloaded."
CAR CRASH
His skepticism is shared by some at the heart of the Chinese establishment.
Zhou Tianyong, a professor at the Central Party School in Beijing, which trains rising Communist Party officials, has long argued that China needs steady but far-reaching political reforms.
In a new book, "Where Is China Headed?", Zhou says China could be heading for a political car-crash unless it reduces bloated government, unshackles small business and ends distortions in the housing market.
31 Aug, 2010, 04.33PM REUTERS
Bears bet time is running out for China to change
BEIJING: Three numbers should suffice to give Chinese economic policymakers a sleepless night: 65.4 million, $28.7 billion and $2.45 trillion.
In order, they are the estimate by a government researcher of how many apartments stand vacant in China, many of them bought as speculative investments; the country's trade surplus in July; and the international reserves the central bank has accumulated by buying dollars to hold down the yuan.
Together, they encapsulate the distortions of an economy that favors investment by suppressing the cost of capital and other inputs at the expense of consumers, whose spending power is held down by low wages and low deposit rates.
Unable to sell at home all that it produces, China exports the rest.
This template has powered 30 years of headlong growth that is catapulting China past Japan to become the world's largest economy after the United States.
But it is a formula that Beijing readily agrees is unsustainable:
China needs to rely more on household spending, especially as its export prospects are darkening now that the West is tightening its belt to purge excess debt.
Many experts are confident that a pragmatic China will succeed in making the transition in the coming decade to a new growth model anchored by urban-based consumption, technological upgrading and a greater role for market forces.
Doubters, though, have two prime reservations. First, that China has left it too late to wean itself off investment-heavy exports. And second, that the ruling Communist Party will fail to overcome the vested interests resisting reform.
"The imbalances cannot continue at this rate for another 10 years. That's simply not possible," said Michael Pettis, a professor of finance at Peking University.
He said pressure to change could become overwhelming within two to three years, or even sooner if trade conflicts flare up.
"They're embarking on change at a time when the rest of the world may not give them much time to shift," Pettis said. "Over the next decade we're going to see average growth rates of 5-6 percent, heavily frontloaded."
CAR CRASH
His skepticism is shared by some at the heart of the Chinese establishment.
Zhou Tianyong, a professor at the Central Party School in Beijing, which trains rising Communist Party officials, has long argued that China needs steady but far-reaching political reforms.
In a new book, "Where Is China Headed?", Zhou says China could be heading for a political car-crash unless it reduces bloated government, unshackles small business and ends distortions in the housing market.
