Recently, the Chinese government has enacted a series of measures to bolster confidence in maintaining economic growth in 2009. It can be surmised that the country has set itself a target of achieving a growth rate of 8 percent in 2009. However, in an interview with the Economic Observer, Director of Nanjing Construction Committee, and Macroeconomics expert Lu Yulong expressed the view that China can tolerate an economic growth rate as low as 6 percent in 2009.
A range of information makes it clear that there are some severe shortcomings in China's economic structure, such as a widening gap between rich and poor, increasingly severe unemployment issues, and the need for a social security system and a basic medical security system. It is widely suggested that if an 8 percent growth rate cannot be guaranteed, problems and issues that are currently simmering under the surface will have to be faced by the government.
However, as a scholar who has studied macroeconomics since the 1980s, Lu Yulong holds the view that the current economic slowdown in China is more a case of returning to a normal growth level. "It is something of a miracle that China has achieved a target growth rate of over 10 percent in the past 30 years," he noted.
"In fact, many social problems have been caused by excessive growth. For example, some local governments have implemented large-scale demolition policies, in order to speed up urban construction, which correspondingly generated housing and employment problems," Lu said. "From now on, China must say no to single-minded pursuit of growth."
According to Lu, overproduction is a major problem in China. At present, automobile production already exceeds 10,000,000, and the country is already first in the world in iron and steel production. In these circumstances, China must take more measures to decrease energy consumption, enhance technological capability and lower production costs, rather than focusing exclusively on volume of production.
After the 1998 economic crisis, the Chinese government promptly adjusted its policies, which allowed economic development to enter a new round of rapid growth.
"However this is 2008, and we should not be over-optimistic about the effects of government policies during the current severe international financial crisis. The situation today is totally different," Lu said.
"Firstly, China has just made a start in housing system reform, and housing demand is a significant driver of domestic demand; secondly, the current foreign trade situation is one of overproduction and market saturation, while in the years following 1998 there was high growth in international demand; thirdly, at present the hidden liabilities of some local governments already exceed annual fiscal revenues, which makes it dangerous to continue with a fiscal deficit policy, " he added.
Deutsche Bank lowered its forecast for China's expected GDP growth rate in 2009 from 7.6 percent to 7.0 percent, suggesting that the fiscal deficit to achieve a target of 8 percent GDP growth will be beyond the government's capacity. It expects that ultimately the Chinese government should and will accept a GDP growth rate of 6-7 percent.
