Published: Aug. 17, 2009 at 11:25 AM
By MARTIN WALKER, UPI Editor EmeritusPARIS, Aug. 17 (UPI) -- Any assessment of China's economic prospects has to begin with the fact that the Beijing political authorities may be the world's best governing elite in terms of their economic record. But they may be running into trouble.
They have proven themselves over the last 30 years to be extraordinarily accomplished, delivering sustained economic growth and higher living standards. The country is now poised to overtake Germany as the world's leading exporter and to overtake Japan as the world's second-largest economy.
China's leaders have combined dazzling economic performance with political stability and so far have negotiated dramatic social change with ruthless skill. All this constitutes an alternative model for other developing nations to the traditional Western form of free market liberal democracy. The Beijing model is authoritarian export-led growth.
The question is whether this model can comfortably continue when its main export markets in North America and Europe have sharply reduced their appetites for Chinese imports.
The other severe challenges for the Beijing authorities are well-known: the shortage of arable land; the even worse shortages of water; the growing dependence on imported energy; an environmental crisis so severe that it has become a major health problem; and the demographic nightmare that will soon result from 30 years of the one-child policy.
All these are sobering difficulties that lie ahead. But the immediate concern must be the vast amounts of credit that have been pumped into the economy. This was Beijing's strategy to escape the global recession. China's economy has experienced what looks to be a recovery during the past six months, with the country on target to meet the 8 percent GDP growth target for 2009 (though statistics in China are notoriously dubious).
The rapid pickup in the economy has been largely a result of a massive increase in state-mandated bank lending. In the first half of the year new loans reached an incredible $1.1 trillion, almost double the total lending for the whole of the previous year. At this rate, China's banks will lend this year around half the country's GDP. This is without precedent, in China or elsewhere.
Most of this has gone to local government-backed entities to help finance their stimulus-related infrastructure projects and to state-owned enterprises, rather than to the usually more productive small and medium-sized private enterprises. Wei Jianing, an official at the State Council's Development and Research Center, said nearly 1.2 trillion yuan of loans are suspected to have been illegally invested in stocks and a lot more is going into speculative residential construction....MORE