Xu Xiaonian: China is Drinking from Tainted Economic Waters

Global Times interviews Xu Xiaonian, a professor at China Europe International Business School:

NE: Year-on-year GDP rose by 11.9 percent in the first quarter of 2010. Some believe that China has entered the fast track of economic recovery. Is this right?

Xu: Let us first assume that those numbers are real and the economy is indeed recovering. I believe that the excessive credit supply of last year and the extremely loose monetary policy both resulted in recovery, which I regard as the result of squandering money. Whether the effects of squandering money will last depends on the government’s decision on whether to keep throwing money about.

Needless to say, squandering money will definitely stimulate the economy.

However, China’s economy has structural problems that cannot be easily solved by palliatives. Too much investment, too little consumption and purely relying on domestic investment and external demand-driven economic growth will no longer support sustainable development.

Chinese President Hu Jintao has repeatedly stressed the need to accelerate the reform of the economic growth model.

But contrary to our fantasies, squandering money did not change the previous growth model, and it has resulted in the structure of the economy deteriorating further. Blood transfusions and oxygen therapy may make a patient feel better, but the illness is not cured. Toxic water may cure your thirst, but it may still kill you.


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