Font size: 
It took Japan and Germany only twenty years to become wealthy countries after World War II. But in the case of the People's Republic of China, nearly 60 years have passed since it was established and 30 years since its reform policy began -- yet China faces many problems. The western regions and the majority of the countryside are still poor; the living standards of workers and farmers are low; the majority of the population does not have social security; private enterprises have great difficulty moving forward; there are hardly any domestic brands; and technological education is stymied. All of this is the result of the seriously imbalanced development of China's economy.
First, the momentum of economic growth is imbalanced. The driving force behind China's fast economic growth is foreign investment and exports. By contrast, domestic demand has remained low. This situation has caused problems including excessive investment in some areas, excessive lending, the growth of energy-consuming and polluting industries, imbalance in trade with other countries and excessive foreign exchange reserves.
Foreign capital controls the majority of Chinese industries that are engaged in trade, which poses a threat to the security of the national economy. Due to the huge gap between the rich and the poor and the lack of social security, Chinese people's level of consumption remains low, and the entire economy relies too much on foreign trade. Imports and exports make up 70-80 percent of China's gross domestic product, whereas the figure is only about 20 percent in the United States and Japan.
Second, economic distribution is imbalanced. China's current financial revenues amount to 4 trillion yuan (US$530 billion). If income outside the budget and the financial system is counted, the figure would surpass 6 trillion yuan (US$800 billion). The government is rich, but the total amount of workers' salaries makes up only 12-15 percent of the GDP, which is far lower than the world average of 40-50 percent.
It can be said that the government's wealth is at the cost of the people's poverty. The more they are taxed, the poorer people become. Of the personal income tax China collects, 80 percent is from salaried people, and 70 percent of value-added tax comes from farmers who purchase agricultural production materials.
China's foreign exchange reserves have reached US$1.3 trillion, the highest in the world. But the more foreign exchange reserves and the more exports it has, the more strain there will be on the country's resources, environment, laborers' health and welfare, and the less income the people will have. More seriously, China's current tax system, its financial market, and its pattern of industrial development can only further enlarge the gap between the rich and the poor, and the domestic economic situation will continue to deteriorate.
Third, the financial flow is imbalanced. Most bank funds flow to the monopolized state-owned enterprises, universities and real estate industry. There is a massive heavy chemical industry and serious over-construction. The 300 million yuan (US$40 billion) in credit meted out to universities is worrying. In addition, 70-80 percent of the funding for real estate projects comes from state banks. Excessive funds flowing into the housing market and the government monopoly on land are causing a rapid rise in housing prices.
Meanwhile, capital markets fluctuate wildly owing to excess liquidity and money flowing into the stock markets, as well as stock market manipulation by bankers and brokers. There is also the influence of the "policy market" -- a nickname for China's stock market, implying that the government often utilizes policies to influence the share index. State-owned enterprises with a monopoly on resources sell their stock in overseas markets at a low price, which results in a massive outflow of profits overseas, while the majority of medium or small stockholders within the country lose nearly everything including their initial capital. On the one hand, there is the so-called "liquidity prosperity," on the other hand, there is the real "liquidity depression." There is a lack of funds for new construction in rural areas; small and medium-sized enterprises still face financial difficulties; and in the backward western regions there is a lack of basic education, social security, environmental protection and culture.
Fourth, economic competition is imbalanced, which is to say there is serious asymmetrical competition between the state-owned monopolies and private enterprises. Currently, a group of inefficient and ill-managed state-owned enterprises are listed among the world's top 500 companies, whereas private enterprises within the country have great difficulty surviving. If they didn't engage in profiteering and speculation, didn't collude with government officials, and didn't evade taxes, 80 percent of private enterprises would collapse immediately. It is hard for private enterprises to grow, establish their own brands, upgrade their technology, and access overseas markets due to heavy taxes, financing difficulties, orientation toward low-end products, and meager profit margins.
Fifth, the use of economic resources is imbalanced. At present, most of China's economic resources are utilized by all levels of government. The three main factors of a market economy -- capital, land and cost of labor -- are all controlled by the government, which results in an "authoritarian market economy" or a "bureaucratic market economy."
The government's administrative costs are extremely high and the waste is astonishing. The "four public expenses" -- food and drinks, vehicle purchases and maintenance, overseas travel and mansions built with public funds -- together with the expenditures of the Communist Party, the National People's Congress, Chinese People's Political Consultative Conference, Communist Youth League, Women's Federation, Trade Union, and democratic parties, account for more than 50 percent of the country's financial expenditures. There is a severe lack of investment in medical care, education, care for the elderly and other livelihood issues.
These five imbalances are a big concern to the Chinese people. To resolve them, we need new concepts of governance that include putting the people first, seeking harmony and fairness, as well as the new idea of "preserving the wealth of the people, not of the country."
Next, we need to establish a new system that features equal competition, fair distribution of resources, scientific development, democratic supervision, the withdrawal of the government from the market, and protection of vulnerable groups. For example, we should encourage the healthy development of workers' unions, farmers' unions and other collective organizations.
We should consult the people and experts in developing legislation and abandon the practice of allowing government departments and interest groups to draft legislation. We should implement democratic decision making and an accountability system in the government and contain the expansion of privileged administrative power. We should encourage public interest litigation in the financial arena, establish a transparent financial system and reduce government expenditures.
We also need a system that punishes dereliction of duty among officials responsible for medical services, education, care for the elderly, housing, environmental protection and other areas that affect the peoples' livelihood. We should direct profits from state-owned enterprises into areas that affect the people's well-being, increase benefits to workers, and narrow the gap between the rich and the poor.
We should reduce enterprise taxes, expand the issuance of enterprise bonds, promote domestic demand, and improve economic efficiency. We should channel funds into new rural construction, small and medium-sized enterprises and the culture industry. We should standardize the stock market, discouraging manipulation by bankers and brokers and reducing government interference. We should set up a property management system and collect taxes on mansions and owners' second properties.
Finally, we should carry out reforms in the political achievement system, shift the focus away from attracting capital and further reduce the export rebate rate.
In other words, there are many things to be done to set China's economic house in order.
--
(Hu Xingdou is professor of economics and China issues at the Beijing Institute of Technology and an expert on social problems. This article is translated and edited from the Chinese by UPI Asia Online. ©Copyright Hu Xingdou.)
