Growth on right track despite pitfalls

Second, some people attribute the overcapacity in some industries to investment, and propose higher consumption to boost growth. Since the overcapacity comes from the iron and steel, cement, electrolytic aluminum and glasses, investments to further increase these industries' production capacity should be reduced. And the saved funds should be used for the technological upgrade of and to promote innovation in these industries, and for environmental protection and infrastructure construction. What China needs is more efficient and accurate investment.

Third, many say the government should not pass any more proactive fiscal policies or increase currency supply. Some economists' studies show the government's investment return ratio from 2008 to 2012 was markedly lower than that for enterprises' investment, and argue that China should cut government investment and encourage enterprises to invest more. The fact is, the government's proactive fiscal policies in 2008 and 2009 were necessitated partly because of enterprises' reluctance to invest, and most government funds have gone into infrastructure, whose returns are realized later than those for enterprises' investment. The economists have certainly failed to see the importance of government investment for the entire economy.

Poor infrastructure has become a big growth hindrance for many developing countries. The Chinese government is thus right to use limited investments to improve the infrastructure that will benefit society and the market in the long run. Keeping this in mind, it is time to take advantage of the low prices of building materials to expand and strengthen China's infrastructure.

The author is former chief economist and senior vice-president of the World Bank. The article is an excerpt from his speech on the Chinese economy at Peking University on March 14.

(China Daily 03/21/2015 page8)