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Beijing needs big reforms if it is to survive, says economist
 
 Author:Unirule  
Time:2012-11-01 15:15:29   Clicks:


China must reform rural ownership, it’s increasingly powerful state run enterprises and ultimately its political system if its economy is to survive, one of the country’s leading independent economists has warned.

 

But the country’s model is an unsustainable, one-off fluke made possible only by the coincidence of a turn towards the market economy while Communist Party officials maintained their self-discipline

 

The world’s second largest economy is facing a sharper than expected slowdown and its leaders are wary of repeating the mistakes of the 2008 stimulus packages which lead to high inflation and overcapacity.

 

“The “China Model” is effective in the short run but unsustainable,” Shen Hong, co-founder of Beijing’s leading independent economic think-tank Unirule Institute of Economics told The Australian.

 

“The China model is a success by chance, it will not last and it cannot be duplicated.  The Party has lost its self-discipline. Back in Deng (Xiaoping’s) regime they still had self-discipline but during the regimes’ of Jiang Zemin and Hu Jintao Party members have lost their self discipline, so it will not last for too long.”

 

Dr Sheng, who will speak at this Friday’s China Conference presented by The Australian, said this was especially true in the former two decades when super-fast growth ensured that that the devastating power of corruption did not eat up all the benefits brought by the market system.

 

“That’s how the “Chinese Miracle” was finally made,” he said. “But unchecked power will get rusted as time goes by.”

 

While Dr Sheng decline to put a time frame on how long China’s model could continue he lambasted the behaviour of Party-heavy interest groups which are intertwined with the state owned enterprises that dominate most key sectors of China’s economy.

 

“It is gigantic interest group sucking a living from the rest of the economy, it is about 10 per cent of the whole GDP so it is too big. It is a huge economic body that is running at very low efficiency. The great interest groups –the SOEs -  have taken the large proportion of energy and resources – including energy, land and financial resources.

 

“That means the whole economy has to support the survival of these interest groups and that has contributed to the slowdown of the economy. The interest of the SOES are contrary to the interest of the people, they do not hand over their profits.”

 

The corrupt behavior of the ruling group has caused social unrest in China which was also occurring because widespread of removal of people from their land and houses by governments, keen for the revenues from the sale of land, Dr Sheng said“Local governments force people away from their land and confiscated their land. If the economy continues to weaken, the tensions will be intensified and the conflict will be worsened.”

 

Still, he was unsure if the economy would get much worse as the government “still has tools” to  lower interest rates , increase investments, as well as opening more sectors to private enterprise investment which are currently under government monopoly.[Page]

 

Like many advocates for change, Dr Sheng has a huge following – 2.8 million people – on his weibo, or microblogging site, a Twitter -like service used by over 200 million Chinese“Information has great power, he said. “The rule of dictatorship relies strongly on the hiding of truth but the internet wiebos provide more information and truth for people.

 

“In the past we used to spread our ideas through papers now we can spread them on the internet more rapidly.

 

Although he does admit that people on weibos do preach somewhat to the converted. “I do realise that my “fans” are not the same people who read the (Communist Party mouthpiece) People’s Daily.

 

Dr Sheng was not complimentary about the outgoing regime of Hu Jintao and Wen Jiabao which while averaging GDP growth of more than 10 per cent has presided over a widening disparity between China’s rich and poor.

 

“This regime has not been capable or good enough and secondly it has had no will to predict or cope with problems. They are busy making money for themselves, all they a care about is their monopoly SOEs.

 

There always cope with crises in a rush, without any preparation; they work out policy measures on the run.”

 

As for the upcoming once-a-decade leadership change that is due at the very top of the ruling Communist Party next month, Dr Sheng does not hold out a lot of hope.

 

“Even though they have changed there leaders there are still the same interest groups holding power.”

 

 But he has some advice for leader-elect Xi Jinping and his Premier-in-waiting Li Keqiang to reform China’s economy, proposing what he says is “simple” three-step program.

 

“The first step is to make peasants land tradeable on the market,” Dr Sheng said. “The current situation is that government takes over the land or house then sells it on the market, we believe they should be able to trade it themselves.

 

“Secondly the monopoly of SOES needs to be broken down, the first step is to abolish all the privileges such as free rental and land as well a preferential interest rates from banks. (Most SOEs pay no rent). They should also hand over 100 per cent of their profits to the government.

 

“And the third is eventually to open monopoly markets such as petroleum supply to competition. At Unirule wee have been advocating these proposals for years.”

 




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