Will China’s Incredible Growth Continue? Probably not. Too many problems, from excessive bad credit to environmental disasters, need to be addressed. And all this will be very expensive

By Paolo von Schirach

February 4, 2014

WASHINGTON– Is China’s incredible 30 year economic miracle sustainable? Or is it going to fizzle? Difficult to say. I am convinced that the reform process ordered and directed long ago by Deng Xiao Ping unleashed historic and mostly positive transformations. Whatever the official descriptions of the reform process, Marxism-Leninism was ditched. Free enterprise was permitted. New companies sprouted. Consumer goods appeared. And lots of people started making real money.


But all this occurred under the not so healthy umbrella of a one party state. Strategically placed Communist Party officials, as the gate keepers of key sectors, coveted credit and all sorts of permits and regulations, became fabulously wealthy. Staggering levels of corruption became normal.

Environmental disaster

At the same time, the political imperative to have super fast development was carried out with conscious and deliberate disregard for any environmental safeguard. Outcome? The most polluted cities in the world are all in China. Air quality in many of them is so bad that foreign companies have a hard time convincing staff to move there. Most of the (scarce) water in China is heavily  contaminated, and so is soil. This is no mere “problem”. This is a disaster of epic proportions.

Social tensions

And finally social issues and tensions were created by attracting hundreds of millions of poor farmers into cities with the offer of factory jobs, without however granting them full “residency” status. And this means no rights to many public services for millions of people. Besides, this massive economic migration also created divided families with children living with grandparents, while their parents toil in far away factories. How will children who literally never see their parents grow up? Who knows really.

Bad credit

Most recently, we know that the Chinese Government, in its (politically motivated) efforts to sustain growth encouraged easy credit through a variety of non traditional financial instruments. The speed of  growth of this new (unregulated) credit is stunning and indeed alarming. Experts who follow these trends predict that China, just like other countries that allowed fast and uncontrolled credit binges, will soon suffer some bad consequences . There are just too many questionable loans out there. Many of them will turn out to be bad. Huge amounts of money will be lost.

In the meantime, while the officials recognize that there has been a slow down in growth, we really do not know the exact extent of this new trend, simply because no one can trust Chinese official statistics.


Optimistic scenario. China’s foundations are solid. There will be a slow down but there will continue to be healthy growth. (Who can say that 7% is bad?) Notwithstanding some bad loans, the financial sector remains strong. The state will fix the environmental damages of the past. Social reforms will give migrant workers equal rights.

Pessimist scenario. China’s conditions are a lot worse than they appear. Bad loans will cause huge losses. The manufacturing sector will lose steam, as labor costs increase. The environmental disasters will require enormous expenditures. Social unrest will increase.

Well, as is often the case, the truth may be somewhere in the middle. But I am not optimistic. The tendency of the Chinese Government is not to be transparent. Chances are that things are worse than what they say. Perhaps much worse.

I also believe that the anti-corruption campaign will fail. Sure enough, there will be some examples. A few really bad people will be arrested and probably sentenced to death or harsh prison terms. But you cannot change a culture that easily. For example, some Chinese media report about elaborate schemes that allow officials to receive expensive gifts while not leaving any trails of money hand outs, or receipts for purchases made anonymously on line. Likewise, 5 star hotels these days are eagerly seeking status “downgrades”, so that  officials who are forbidden to use luxury accommodations can still patronize them. As you can see, plenty of crafty ways to circumvent recent restrictions.

Is this the good life?

Last but not least, quality of life. This Chinese New Year Holiday is supposed to be a festive period for all Chinese. This is the most important holiday of the year. And yet Chinese media report stories of people in real distress. Social customs compel people to give expensive presents and to provide lavish entertainment that they cannot afford. Many go into heavy debt by renting bigger houses for the New Year Holiday so that they can accommodate visiting relatives.

And, finally, unmarried young women who do not want to look bad at family reunions go to on line services to “rent a boy friend”. Attractive men are available, for money of course. Kisses, however, require extra payment. A fee schedule describing the cost of each extra “service” is usually attached.



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