<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN"> <HTML><HEAD> <META http-equiv=Content-Type content="text/html; charset=iso-8859-1"> <META content="MSHTML 5.50.4207.2601" name=GENERATOR> <STYLE></STYLE> </HEAD> <BODY bgColor=#ffffff> <DIV><FONT face=Arial size=2><A href="http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1025706818747&p=1012571727169">http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1025706818747&p=1012571727169</A></FONT></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV> <DIV> <TABLE cellSpacing=0 cellPadding=0 width="100%" border=0> <TBODY> <TR> <TD class=bigHeadline>China's disguised failure</TD></TR> <TR> <TD class=all></TD></TR> <TR> <TD class=all>Published: July 4 2002 7:55 | Last Updated: July 4 2002 7:55</TD></TR> <TR> <TD><IMG height=20 src="http://news.ft.com/c.gif" width=1></TD></TR> <TR> <TD class=allWide> <P>d4 The debate that is gaining steam over the accuracy of China's growth figures for the past few years is far more than a matter of technical quibbles among statisticians. Rather, it marks the beginning of a long-overdue reassessment of the successes and failures of Beijing's reform era - the widely praised attempt at growth and modernisation that began not long after Mao Zedong's death in 1976. </P> <P>Last year Thomas Rawski, the American economist, started the argument with the startling assertion that - official claims of economic growth rates of more than 7 per cent notwithstanding - China's economy since 1998 might not have been growing at all. </P> <P>Then, in March, Zhu Rongji, China's premier, seemed to support him when he said that without massive state pump-priming, the Chinese economy would have collapsed in 1998 - the very year Mr Rawski singled out. </P> <P>Other voices have joined the debate since. This year, for example, the Central Intelligence Agency stated that China was indeed growing - but at about half the rate that Chinese officials claimed. And the East-West Center in Hawaii reported recently that China's statistical methods were flawed. </P> <P>Everywhere, it seems, China's economic indicators are being marked down, causing deep concern and confusion about the prospects for the world's most populous country. Are we feeling no more than a few bumps on China's still inevitable ascent to economic greatness? Or are these the first signals that fundamental flaws may exist in the Chinese approach? </P> <P>To the visitor, economic vigour seems evident on every street corner. Scratch the surface, however, and you find unsold goods in the shops and unemployed people camping on the streets. </P> <P>One lesson of the collapse of socialism in eastern Europe is that profitability, not quantity of investment, is the key to sustained economic growth. Here, arguably, lies China's fundamental problem. There is no doubt that massive investment is being made - more than $300bn in foreign direct investment in 20 years, and vastly bigger amounts by the state. All this shows up as growth because the sums are spent, the workers are hired and the cement is poured. But what about actual return in a decade or two? This is much less clear. And what opportunities are missed by having foreigners and the state in charge, rather than letting Chinese entrepreneurs do the job? These may be enormous. </P> <P>Many foreigners think, mistakenly, that China is capitalist. In fact, China's system is exactly what its leaders call it: socialism with Chinese characteristics. In practice, that means a large state sector, party committees even in private enterprises, corporate boards that are unable to fire managers, no market for corporate control and massive changes in economic policy (such as <SPAN onmouseover="this.style.backgroundColor='yellow';this.style.color='black'" style="BACKGROUND-COLOR: transparent" onmouseout="this.style.backgroundColor='transparent';this.style.color=''"><SPAN onmouseover="window.status='TopText Link';return true;" title="Receive A DEBT REDUCTION ANALYSIS from UnitedCreditCounseling.com & Find Out How To LOWER Your Debt Through Non-Profit Debt Assistance Programs." style="BACKGROUND-POSITION: left bottom; BACKGROUND-IMAGE: url(C:/PROGRA~1/eZula/images/new.gif); CURSOR: hand; BACKGROUND-REPEAT: repeat-x; BACKGROUND-COLOR: transparent; TEXT-DECORATION: none" onclick="top.location.href ='ezula:/rlk;972;1;http://www.ezula.com/LingoWare2/redirect/redirect.asp?DS_ID=220734&PubName=LingoWare2&UV_ID=14689301;';window.event.cancelBubble=true;window.status='';return false;" onmouseout="window.status='';return true;">consolidation<SPAN></SPAN></SPAN><SPAN></SPAN></SPAN> of the motor industry) dictated without consultation. </P></TD></TR></TBODY></TABLE></DIV></DIV></BODY></HTML>