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Time to push spending - and social reforms

By You Nuo (China Daily)
Updated: 2008-11-03 10:31

The same figure can have a multitude of meanings. I mean China's GDP. In boom times, an annualized 10 percent growth would be seen to be on the edge of overheating, if not danger.

But in a time of crisis, as the world is in now, it is seen as a confidence booster for commentators from even distant lands.

Quarter after quarter, China's GDP growth has slowed down this year, from 10.6 percent in the first quarter, to 10.1 percent in the second, and then, in a major dip, to 9 percent in the third. Together, they made the country's GDP growth so far (in the first three quarters) 9.9 percent.

If this rate could stay in the last quarter (which is highly unlikely), it would still be higher than the yearly plan of 9.8 percent.

But since the real economy could often exceed the target planned by the government in this country, no one even bothered to offer any comment when it was just released from the national legislative meeting in March.

It is a completely different picture now, after nearly all financial markets in the world have reported major losses and corporate collapses since the middle of the year.

The impact on the real economy will last well into next year, probably with large lay-off numbers reported between now and when banks are back to their normal business.

A glimpse into the world press offers a sudden flood of opinions about frugality, suggesting that for the time being, consumers in rich countries are seriously prepared for tightening their belts.

At this point, in this age of globalization, some good news about the Chinese economy would certainly inspire more people than those just in China and its nearby region.

This is why central government officials have been busy working out their economic stimulus plans, tailored mainly to boost domestic spending.

But in domestic spending, China actually holds very few useful cards. It is not accidental that in the past 30 years of economic liberalization, domestic consumption has always been a relatively weak link.

Among the factors to explain the phenomenon, the most crucial one is the slow progress in many social reforms, from creating a medical insurance system for all citizens to granting migrant workers full rights as urban residents.

There is no problem for the government, on both the central and local levels, to earmark funds for huge infrastructure projects such as railroads and expressways. A government that controls some 30 percent of a nation's wealth but without generously funding social programs for all people can of course have a lot of money to spend and generate some growth figures.

But the services that may come along with those infrastructure projects may still be inadequate. The new infrastructure cannot realize its value without due social reforms, especially when they can only be used by a privileged few - be they certain sectors of population or companies with certain status.

For instance, Beijing and Tianjin are now connected by a railroad for very fast bullet trains, and all trains, starting from both cities every half hour, are reportedly fully loaded. But retirees still cannot buy houses on the newly developed Tianjin seashore because they cannot bring their medical insurance with them.

A friend of mine from eight years ago, who was then a migrant worker hired by an interior decoration contractor in Beijing, now already has his own small company in the nation's capital city. His family joined him a long time ago. But at school, their children are often charged more money than other kids simply because they are still not deemed fully registered urban residents.

Some officials say that China cannot rush its social reforms, because they are costly and it will take years to develop them in a systematic way. These are largely pretexts. At a time of crisis, a delay in social reforms may result in additional difficulties for China - and certainly no benefit.