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People's Republic Of GDP - Why China's Pursuit Of National Wealth Is Doomed

Chinese GDP is growing -- but it is ever more at odds with the better life Chinese people aspire to. Despite new leaders' best intentions, China's ambitions could all come undone.

Cold night at Shanghai airport
Cold night at Shanghai airport
Liu Shengjun


BEIJING - On November 15, after Xi Jinping took office as General Secretary of the Chinese Communist Party, he gave a speech defining the “Chinese Dream:”

“Our people love life and expect better education, more stable jobs, better income, more reliable social security, medical care of a higher standard, more comfortable living conditions, and a more beautiful environment. They hope that their children can grow up better, work better and live better. People's yearning for a good and beautiful life is the goal for us to strive for.”

After listening to his speech, I wrote on a microblog: “My top ten wishes for the coming ten years:

1. People won’t have to buy reliable infant milk powder abroad.

2. People will be able to purchase safe food in large super markets.

3. White collar workers no longer have to live as “housing mortgage slaves.”

4. Pollution will not worsen.

5. The wealth gap will not widen.

6. The rich will no longer want to emigrate to foreign countries.

7. The number of “naked officials” officials who send family and money abroad and prepare to make their own getaway will decrease.

8. The stock market will be a place for people to create wealth, not a black hole that drains money.

9. Everyone will be able to have equal opportunity without relying on family connections.

10. Remarkable progress will be made in restraining the misuse of power.”

To my surprise, my post was massively forwarded, and has now been read by over 100,000 people. Quite a number of Chinese newspapers, both in mainland China as well as in Singapore and Hong Kong also reprinted my post. It’s content obviously resonated with the public. Overall the public’s comments can be summarized as follows:

1. I aspire to the same ten wishes.

2. I’m not asking for much.

3. There’s little hope your wishes will come true.

On Nov. 29, while he was visiting the “Road toward Rejuvenation” exhibition at the National Museum in Beijing, Xi Jinping said that “Today everybody is talking about the Chinese dream. We will become a modernized country on its way to the ultimate great rejuvenation of the Chinese nation. This is the greatest dream of the Chinese nation in modern history.”

Admittedly every Chinese person yearns for the rejuvenation of the Chinese nation, so that they can avenge the hundred-year-old humiliations that China has suffered in the past. However what is even more important to each individual is to be able to lead a good life. This is the cornerstone of national prosperity. To forget this is to put the cart before the horse. When national prosperity is out of touch with providing a better life for its people, it is not sustainable.

Still, people often forget this. Historically there have been many countries that have regarded economic strength, military strength and global hegemony as the goals to strive for. The tiny Buddhist country of Bhutan is unique for putting a "happiness index" as its national goal.

Measuring happiness

In 1972, Bhutan became the world’s first country to determine “Gross National Happiness” as a national development goal. In 2006, Bhutan was credited as being one the happiest county in Asia and 13th happiest in the world.

Bhutan's "Gross National Happiness" indicators include education, psychological wellbeing, health, free time, cultural diversity and resilience, good governance, community vitality, ecological diversity and standard of living. GDP only accounts for 1/72th of the total value of happiness.

The tragic history of the former Soviet Union offers the best footnote on attending to the forest while neglecting the trees. In 1959, at the opening ceremony of the American National Exhibition in Moscow, there was the famous “Kitchen Debate” between U.S. Vice President Richard Nixon and Soviet Premier Nikita Khrushchev. The debate was held in the kitchen of the fake American prefabricated house built for the exhibition. The two men argued about the pros and cons of the economic system in the U.S. and in the Soviet Union. The major divergence lay in the point that Nixon believed that people’s lives were more important whereas Khrushchev was convinced of the strength of a powerful state. In the end, time was the best judge.

Though China has abandoned the Cold War arms-race ideology, it has somehow fallen into the trap of GDP worshipping and has replaced the good life of its people with GDP supremacy. At all government levels officials are chasing GDP growth not only because it’s the main measurement of their political performance and image but also because it brings tax revenue and massive opportunities. It’s no wonder nothing came out of the Green GDP initiative that was promoted a few years ago.

At the present stage, China’s GDP is growing more and more at odds with the better life Chinese people aspire to.

China is paying a huge cost for the local governments’ neglect of environmental protection. According to a World Bank study in 2007, water and air pollution are costing China 5.8% of its GDP. Pollution has become China’s number one killer. Recent protests against polluting factories across the country are just the tip of the iceberg.

Smart investing, not just investing

The government is using the rapid expansion of its land revenues and local financing platforms (government-backed investment companies through which local governments raise money for public works) to engage in investments. In the short term this will maintain a rapid economic growth but in the long term “there is no free lunch.” These funds could have been distributed to where society needs them through a market mechanism.

Take high-speed rail for example. To evaluate the social value of high-speed rail two questions need to be answered. First, is there a way of achieving these projects at a lower cost? Just think about Liu Zhijun, the former Minister of Railways, who is now jailed and under investigation for alleged corruption. Second, are there sectors that need more urgent investment than high-speed rail?

Think about how difficult and expensive it is for people to see a doctor. Even more important, government-led investment is intensifying investment dependence and the imbalance in income distribution as well as making the Chinese economy fall into an investment-driven quagmire from which it will be incapable of extricating itself.

At the “catch-up” stage, the strong government-led model has certain advantages due to the high efficiency of decision-making and the ability to mobilize resources. But with the passage of time this model brings high social costs that rapidly aggravates an unfair income distribution gap.

Instead of being the defender of competition rules, the government will become a competitor itself –against the people –, which will eventually lead to the marginalization of the rule of law. As Professor Wu Jinglian warned, “China's economic contradictions and social conflicts have almost reached the critical point.”

Seventy-three Chinese companies made it to the 2012 Fortune 500 list, among which only five are private enterprises. The reason why state-owned enterprises are so powerful is mainly due to their administrative monopoly status and hidden advantages such as access to economic resources. Not only is this contradictory to the basic element of fair play in a market economy, it also is becoming a hotbed for corruption and social inequity.

Understanding these problems will help one to understand why even though the Chinese economy rules the world, public discontent is growing.

Thus to realize each Chinese person’s dream, the government must abandon the GDP-driven pursuit and return to the ultimate goal of economic development, that is, to make its people happy. To achieve this, public authority ought to be constrained. Just like in my ten wishes, only if remarkable progress is be made in restraining the misuse of power, can the other nine wishes be fulfilled.

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