China’s GDP growth falls below 8%, indicating the end of
“cost reduction mode” in stimulating the economy
Recently, China’s GDP growth slow down became the central
topic of global media.
In the second quarter of 2012, China’s GDP growth fell
below 8% for the first time in three years.
Some mainland professors claimed that the key for keeping
economic development depends on whether the 18th national congress initializes a true reform.
Some scholars also called for turning China’s economic
system into a real market one.
Another scholar pointed out that, China’s “cost reduction
mode” which generated the high GDP growth in the past 20 years had reached its end;
China’s economy has encountered a big turning point.
The CCP authority announced officially that China’s GDP
growth in the second season of 2012 is 7.6%,
which for the first time fell below 8% in three years.
Yuan Jian economic commentator and the author of “A Big
Turning Point” said that this was nothing surprising.
Yuan remarked that, as the monetary policy restored to
normal China’s economic growth would inevitably drop.
Yuan Jian: ”After 2009, the high economic growth was basically
induced by stimulation policies and bubble economy from loans.
In fact China’s potential economic growth had been
dropping since 2007.
At that time, the global situation and low domestic demand
caused trouble to China’s economy.
In 2008 the authority introduced a stimulation policy
and it worked for two to three years.
Currently as the monetary policy is restored, the GDP growth
Slow down can be expected.”
US magazine Foreign Policy published an article called
“Five signs of the coming economic disaster in China”.
The article said that, according to the statistics, burnout
of China’s well-praised economic growth engine had occurred.
The signs included loan reduction from companies, decreasing
output of manufacturing industry,
unexpected cut of interest rates, cease of export growth and
drop of expected GDP growth.
Yuan Jian pointed out that the “cost reduction mode”
which China relied on to keep a high economic growth,
has reached its end; hence the “high-speed train” of
China’s economy had to decelerate.
The so-called “cost reduction mode” refers to generating a
temporary economic growth by exploiting labor costs,
depriving civilians of their social benefits and
destroying the environment.
Yuan Jian: “Involved in numerous economic activities,
the Chinese Communist Party (CCP) government had
a wide and huge effect on the process of economic growth.
In fact the CCP played a role of reducing various kinds of costs
such as environmental cost, labor cost and giving out free land.
These moves reduced the cost of manufacturing industry
However, the reduced cost did not disappear;
they were only shifted.”
However, Chinese civilians are gradually awakening.
They reacted to the “cost reduction mode” with massive
protests which happened tens of thousands times a year,
bringing an end to China’s high GDP growth.
Professor of Finance Department at Fudan University,
Kong Aiguo told the Central News Agency that
the problems of China’s economy were rooted in
the political regime.
Kong said, “Governmental behavior is determined
by its political system.
Without changing governmental behaviors,
it’s impossible to develop a true market economy”.
Kong believes that the state-owned companies must
reform and transfer equities to civilians.
“We can’t only give benefit to state-owned companies
in every important project” Kong said.
“Civil investments are all blocked with state-owned
companies staying in the way.
China’s economy will be trapped into a vicious cycle
towards a stagnant form.”
Professor of Economic College at Tshinghua University
Wei Jie once claimed that
China’s GDP growth could not fall below 7%,
otherwise many fundamental social problems
such as unemployment growth would be induced.
Yuan Jian remarked that GDP growth slowdown was
a natural phenomenon itself.
The real problem lay in malfunctions of social construction,
welfare and other fundamental systems.
China’s frail political regime also led to a low endurance
capacity of the whole Chinese society.
Yuan believes that GDP growth slow down might result
in various unexpected problems.
UK-based company Capital Economics created
its own index of China GDP between 2008 and 2009.
According to the index, China’s economy increased by 7.6%
in the first season of 2012, 0.5% lower than CCP official data.
It is expected that the officially announced 7.6% GDP
growth in the second season is also an exaggerated number.