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The Price of the Economic Miracle

Respected author of China’s Ecological Winter discusses Chinese leaders’ recent comments regarding the emerging bubble economy in China.

Recently, we heard some rarely spoken truths from Hu Jintao andWen Jiabao, the new Chinese leaders.  They revealed to the world theeconomic crisis facing China. "Our economy has shown signs of a bubble economy, and possibility ofcrisis and severe inflation. The Chinese government must take forceful measuresin order to save the economy."  The source of the problem, they havedetermined, "Is more than an issue of economic reform. The problems arerooted in the social structure and political system." Their words wereright on target, but are they too late?

Onthe surface the overheating Chinese economy is taking center stage, but beneathit lays the secret of Chinese leaders trying to survive politically. The speedof the economy’s growth itself should have raised questions.  It had longbeen concluded within the circle of Chinese economists that gains from thistype of "fast growth" cannot make up for its losses. China’sscience, research, technology, and economic efficiency are all inferior whencompared with other developed countries.  How could China createthe "miracle" of continued rapid growth? It was nothing butinjections of large amounts of basic materials, funds, and labor, disregardingthe high costs associated with them.

Eventhough the Chinese government always likes to boast about its economic growthand is eager to bill itself as a future economic giant, it is clear to theadministrators in the State Council and their economists that this kind of lowefficiency growth is fatal and catastrophic to a country. In private, thedecision makers in the State Council seek controlled growth, not the currenthigh growth rate, but controlling economic growth rate has proven to be very difficult.As observed by some Chinese economists, "We encourage higher economicefficiency every year, but fail every year. We talk about controlling thegrowth rate everywhere, but lose control everywhere."

Theprimary reason for this loss of control can be attributed to the state of thecurrent political system and the interests of the ruling Party. It has longbeen the policy of the central government to develop the economy at a fastrate. When it comes to evaluating local officials and managers of largestate-owned enterprises, their performance is directly measured by the amountof raw growth numbers they can produce. These officials are able to increasegrowth levels because they have direct influence over local branches ofstate-owned banks, keeping bank funds in easy reach. These funds are inevitablytapped to fuel the overheating local economy in loans approved by high rankinglocal officials or even guaranteed by the local government.  For thisreason, local officials chase after these high numbers at any cost and thegrowth rate remains uncontrollable.

Whydoes the central government doggedly pursue such rapid growth? It does so inorder to ensure the Party’s survival. Based on years of experience, the centralgovernment and its economists determined early on that a minimum growth rate of8% was necessary in order to ease the pressure of the growing labor force andto sustain a prosperous social appearance. The Chinese government was not bornout of a general popular election or power passed down by virtue of ancestry,increasing the need for maintaining prosperity and high incomes. It is called"buying social stability." Economists are actually quite familiarwith this phenomenon. As said by Yang Fan, a Chinese scholar, "Why atleast 8%? Economists say it is to ensure employment rate and sustainconfidence… (In fact,) economic growth has long been the main justification ofpolitical power in our nation." As a result, 8% has become the magicnumber that the Party would struggle to reach at any costs.
Ifwe try to calculate the cost of China’seconomic miracle, the staggering price of the accelerated growth is shocking. Afew years ago, in my book China’sEcological Winter, I calculated the grand total of the cost to theenvironment. At the end of the last century, in order to pursue high economicgrowth rates, China’snatural resources consumption, combined with the ecological damage associatedwith the economical development, amounted to 20 trillion yuan (~ $2.4 trillion)per year. China’sGNP is less than one-third of this total cost. No other country in the world ispursuing such suicidal development.

Aren’twe paying a prohibitive price to maintain political power?  In recenthistory, we have paid a high price for the nation’s survival and for dictators’desire for power. To put the current price in context, I provide you below alist of some recent costs, excluding those that were incurred during the civilwar in the late 40s and the War against Japanese invasion, which are hard toestimate:

Decisionto fight for North Koreain the early 1950’s: 100 billion yuan (~$12 billion)Direct economic loss fromGreat Leap Forward [1]: 120 billion yuan (~$14 billion)Ten years of directeconomic loss during the Cultural Revolution: 500 billion yuan (~$60billion)More than ten years of "Three-Line Construction" [2]: 600billion yuan (~ $72 billion) 

Noneof these calamities comes close to matching the ecological price or the amountof resources that we are paying today during peace time.  We have keptpaying such a staggering price for more than a decade for this fast-rateeconomic development, all to maintain the ruling political power of a verysmall number of people.  Sadly, we are not paying the price with China yuan,U.S. dollars, or bars of gold; we are paying the price by destroying ournatural environment and the future of our nation.


[1]China’sGreat Leap Forward campaign of 1958-1960 was a campaign by the ChineseGovernment from 1958 to early 1960 aimed at using Mainland China’splentiful supply of cheap labor to rapidly industrialize the country.  Itwas thought that through establishment of collective farms and through masslabor, China’s steelproduction would surpass that of the United Kingdom only 15 years afterthe start of the "Leap." The Great Leap Forward is now widely seenboth within Chinaand outside as a major economic disaster.
[2] "Three-LineConstruction" refers to the extremely difficult and high cost defenseprojects in the Western in-land of China during the 1960’s. Those projects aimed to ensure survival from U.S. air bombardment in case ofwar.

About the Author:
Zheng Yi was born in 1947 in Chongqing, Sichuan province. He became a renownedwriter in Chinain the late 70s and early 80s after publishing several award-wining novels,which were later turned into popular films. After the June 4th pro-democracystudent movement in 1989, Zheng Yi became a fugitive and moved around in safehouses for three years in Chinabefore he had to flee overseas. In recent years, Zheng Yi turned his fullattention onto the ecological crisis that China is facing. He spent three andhalf years researching and writing a book titled China’s Ecological Winter. Thebook, published by Hong Kong publisher, Mirror Books, provided an in-depthanalysis of the coming ecological catastrophe in China, the first book of this kindever written in Chinese.