China has implemented a proactive fiscal policy and a moderately accommodating monetary policy in order to ride out the global financial crisis since October. These measures, coupled with the massive stimulus plan in particular, however, have led to overcapacity and excessive investment in industries such as steel and cement. And while a cabinet meeting on August 26 chaired by Premier Wen Jiabao sought to curb such problems,

Lu Qianjin, an associate professor of international finance at Fudan University, argues China should adopt employment-oriented macro-control targets instead of pursuing merely high growth fundamentals, in an article written for The Oriental Morning Post. Edited excerpts follow:

The current overcapacity in certain industries, I think, is a byproduct of China's investment-propelled economic growth and the lack of demand. An increase in investment will correspondingly require an increase in domestic demand or exports to absorb excessive capacity and maintain the external and internal balance of the macroeconomy.

A failure in maintaining the balance between investment, demand and export will lead to overcapacity in certain industries and make economic growth unsustainable—that is, enterprises with overcapacity will see profit decreases that will, in turn, limit reinvestment and affect production efficiency.

The overcapacity found expression in several aspects. Some regions and industries including those overly reliant on overseas demand have expanded investment recklessly to maintain the growth momentum. On the other hand, investment expansion and production growth by some industries demand equal expansion in other industries or sectors to absorb its increased capacity. But the de-facto imbalance between industries against the backdrop of a global financial crisis will inevitably lead to capacity surplus. Similarly, some government-funded projects can also give rise to overcapacity and repeated construction. Governmental investments will burnish gross domestic product (GDP) results in the short term. The new capacity formed, however, will become new excessive capacity if it cannot be absorbed by domestic demand in the future.

In order to effectively curb overcapacity, I think the government needs not only to work out policies, but also to make these policies employment-oriented instead of growth-focused.

This is for the three following reasons. First, ensuring employment provokes no contradiction with economic growth. The government still needs to increase investment to boost employment while showing preference for industries with high employment in terms of approving investments and loans, such as those to the private sector and small and medium-sized enterprises.

Second, it is conducive to improving people's livelihoods, increasing incomes, boosting consumption and enhancing social welfare.

Third, it is conducive to promoting a balance between investments, consumption and exports.

For quite a long period, high GDP growth rate has always been the pursuit of the Chinese Government, as well as the major indicator to evaluate local governments' performance. That's the major reason for reckless investment expansion and repeated construction in China.

I thus propose to replace "ensuring growth" with "ensuring employment" as one of the goals that our government should work on.

Moreover, the Chinese people's livelihood will be further improved if the industrial structure and economic opportunities are optimized—even at the cost of a slower growth in the short run.