China's GDP grew by 10.9 percent in the first half of this year and by 11.3 percent in the second quarter. These figures stunned analysts.
A catch phrase in China says that "numbers make cadres and cadres make up numbers." That is, impressive numbers can promote a party cadre, who can then use his or her power to make up desirable numbers. This interaction between cadres and numbers goes on today: The GDP figures reported by local governments do not match the national GDP.
Even more frightening is fixed asset investment. Generally speaking, 25 percent growth in fixed asset investment is adequate to sustain normal economic development. However, China's grew by 31.3 percent in the first half of this year, pointing to an overheated economy.
Yi Xianrong (
Back when the government was trying to push economic growth to 7-8 percent per annum, officials at every level exaggerated figures to ensure promotion. Once the economy took off, local government officials worried that the central government's macroeconomic controls would hurt their economic interests and so reduced the figures they reported.
The regular approach to managing an overheated economy is to rely on monetary policy and raise interest rates. However, China is facing a unique situation. Over the past two years, officials have warned that the economy is overheated. In April, China's central bank raised its one-year lending rate by 0.27 percentage points for the first time in 18 months. The government's decision to raise only the lending interest rate was aimed at maintaining the policy of stimulating domestic demand.
Why have the authorities kept their foot on the gas? First, many state-run enterprises subsist on bank loans. Increasing interest rates will only make things more difficult for them by increasing bad debt and in turn creating problems for the whole nation.
Second, only rapid economic development and massive investment enables corrupt officials to ply their trade, particularly those officials who approve loans.
In the end, the government can do nothing about its overheated economy but let it continue until the bubble bursts. Chinese Premier Wen Jiabao's (
For the first half of this year, investment in real estate development accounted for 18.2 percent of overall fixed asset investment. If Beijing fails to cool down the overheated real estate sector, it will also be difficult to cool down the overheated economy. Real estate markets, however, are booming at the local government level, making it easy for corrupt officials to make huge profits.
Repeated adjusting of macroeconomic policies means less profit, and therefore foreign investors are made to suffer instead -- as demonstrated by Beijing's decision to impose restrictions on foreign investment in the real estate sector.
If China continues to refrain from political reform and is unable to solve longstanding economic problems, the economy will one day implode. If that happens, foreign investors will become scapegoats or be forced to help Beijing weather its difficulties. This will apply in particular to those who are now leading the drive to invest in China's state-run enterprises.
Paul Lin is a political commentator. Translated by Daniel Cheng
It is employment pass renewal season in Singapore, and the new regime is dominating the conversation at after-work cocktails on Fridays. From September, overseas employees on a work visa would need to fulfill the city-state’s new points-based system, and earn a minimum salary threshold to stay in their jobs. While this mirrors what happens in other countries, it risks turning foreign companies away, and could tarnish the nation’s image as a global business hub. The program was announced in 2022 in a bid to promote fair hiring practices. Points are awarded for how a candidate’s salary compares with local peers, along
China last month enacted legislation to punish —including with the death penalty — “die-hard Taiwanese independence separatists.” The country’s leaders, including Chinese President Xi Jinping (習近平), need to be reminded about what the Chinese Communist Party (CCP) has said and done in the past. They should think about whether those historical figures were also die-hard advocates of Taiwanese independence. The Taiwanese Communist Party was established in the Shanghai French Concession in April 1928, with a political charter that included the slogans “Long live the independence of the Taiwanese people” and “Establish a republic of Taiwan.” The CCP sent a representative, Peng
Japan and the Philippines on Monday signed a defense agreement that would facilitate joint drills between them. The pact was made “as both face an increasingly assertive China,” and is in line with Philippine President Ferdinand Marcos Jr’s “effort to forge security alliances to bolster the Philippine military’s limited ability to defend its territorial interests in the South China Sea,” The Associated Press (AP) said. The pact also comes on the heels of comments by former US deputy national security adviser Matt Pottinger, who said at a forum on Tuesday last week that China’s recent aggression toward the Philippines in
The Ministry of National Defense on Tuesday announced that the military would hold its annual Han Kuang exercises from July 22 to 26. Military officers said the exercises would feature unscripted war games, and a decentralized command and control structure. This year’s exercises underline the recent reforms in Taiwan’s military as it transitions from a top-down command structure to one where autonomy is pushed down to the front lines to improve decisionmaking and adaptability. Militaries around the world have been observing and studying Russia’s war in Ukraine. They have seen that the Ukrainian military has been much quicker to adapt to