The Hot Zone
China's newly announced air defense identification zone over the East China Sea aims to shore up national security
Current Issue
· Table of Contents
· Editor's Desk
· Previous Issues
· Subscribe to Mag
Subscribe Now >>
Expert's View
Market Watch
North American Report
Government Documents
Expat's Eye
Photo Gallery
Reader's Service
Learning with
'Beijing Review'
E-mail us
RSS Feeds
PDF Edition
Reader's Letters
Make Beijing Review your homepage
Hot Links

cheap eyeglasses
Market Avenue

Special> China International Fair For Investment & Trade> Beijing Review Exclusive> Investment
UPDATED: July 27, 2009 NO. 30 JULY 30, 2009
Private Investment Should Be Encouraged

The Chinese GDP grew 7.9 percent in the second quarter of this year, a much better-than-expected achievement that surprised many economists, as the world economy has not totally recovered. Su Zhenhua, a researcher at the Shanghai Institute of Finance and Law, reminded the government not to be blinded by the good-looking GDP numbers but to instead focus more on structural readjustment. An article of Su was published in the Shanghai Morning Post. Edited excerpts follow.

The economy has indeed been restored as mirrored in the first-half economic figures reflected by the National Bureau of Statistics (NBS). NBS figures also showed that per-capita disposable income of urban residents grew 16.6 percent year on year in the first six months, and the per-capita income of rural residents climbed 8.1 percent.

But as far as I can remember, the two income growth rates are the highest in recent years, which makes me pretty confused.

The government said the college graduate employment rate is expected to be 68 percent this year, which is not a high level. But it still stirred suspicion among experts, who believed the employment situation should be worse than the official figure. Furthermore, there are over 20 million migrant workers who are not represented in the unemployment calculation system.

The gap between discouraging unemployment and buoyant economic growth lies in a shortage of private investment in the real economy. For one thing, it is still difficult for private investors to get funding from commercial banks. On the other hand, private investors have the money, but they don't know where to spend it.

The financial predicament of private investors has made unemployment worse.

After several years of high growth, there are now fewer investment opportunities for private companies, because state-owned companies dominate nearly all the industries with high returns. As a result, the asset price surge in the first half of this year indicates that money has flown into assets like property and stocks but not the real economy. As we all know, asset price rise is unsustainable, because the U.S.-led credit crunch was first ignited from the asset sector.

High investment growth in the first half was achieved largely due to SOE (state-owned enterprise) and government investment. Their investment can show the immediate effect in a short period of time. But in the long run, the state investment spree must stop, because the investment is inefficient. The more state investment is involved in developing the economy, the more private investment will be squeezed out of market competition. In turn, a decline in private investment will hurt consumption and employment.

As we can see from the first-half figures, new bank loans soared nearly 200 percent compared with that of the same period in 2008, meaning the Chinese market is full of cash.

However, under such loose monetary policy, private companies, as well as small and medium-sized companies, are still complaining about difficulties in financing.

Eyeing on the long-term development, structural reform is the top priority, focusing primarily on investment and the income distribution structure.

The key to readjusting the investment structure is to open government-dominated sectors and allow private capital to achieve equal footing with SOEs in terms of developing those sectors.

The income distribution structure can only be perfected after the investment structure is modified. Government investment should be appropriated to the social security system and public service sectors instead of being directly invested in the markets.

Top Story
-Protecting Ocean Rights
-Partners in Defense
-Fighting HIV+'s Stigma
-HIV: Privacy VS. Protection
-Setting the Tone
Most Popular
About BEIJINGREVIEW | About beijingreview.com | Rss Feeds | Contact us | Advertising | Subscribe & Service | Make Beijing Review your homepage
Copyright Beijing Review All right reserved