[OPE-L] China Tries to Rein in Unbridled Capitalism

From: glevy@PRATT.EDU
Date: Mon Jan 23 2006 - 12:54:33 EST

via the portside list.

Putting on the Brakes

Fearing Social Unrest, China Tries to Rein in Unbridled

SPIEGEL ONLINE - January 18, 2006, 11:40 AM

With a fast-graying population, increasing pollution
and environmental damage and the absence of a real
social system, Beijing is now seeking to check
unbridled capitalism and quell flaring social tensions.

Not so long ago, nouveau-riche Chinese could be seen
standing in lines several hundred yards long. They were
registering to purchase luxury condos in Shanghai --
such was the demand. Hoping that prices would continue
to rise -- as they have over the past four years, by a
full 74 percent -- many were even buying third or
fourth apartments in China's bastion of business.
Speculation fever had broken out.

Meanwhile, however, the heat is off. Under massive
pressure from Beijing, Shanghai's city fathers have
levied a new tax on properties that are resold within a
year of purchase.

Central government planners are worried. They want to
steady the economy in the bellwether city at all costs
-- for fear of an impending crash. Such a meltdown
could spark unforeseen consequences, and deal a
crushing blow to state banks that have amassed billions
in distressed debt.

To ward off the apocalypse, Beijing has been curbing
loans for steel, cement and, of course, real estate
during the past twelve months. According to Cao Yushu,
a spokesperson for China's National Development and
Reform Commission (NDRC), the escalating investments
are a "tumor in China's economic body." The economy has
nonetheless continued at a rolling boil, growing by
more than 9 percent. Provincial officials and managers
customarily ignore edicts issued by the planners in

So China continues to boom, using a quarter of the
world's cement and steel, and almost a third of its
coal. The country has long succeeded Japan as the
world's second-largest consumer of oil.

And maintaining growth remains its only option.
Compared with industrialized countries, private
consumer spending comprises a relatively low share of
its GDP -- arguably too low to cushion a major slump.
Although Beijing's new investment rules have led to a
decline in imports, exports have increased all the
more. China's export surplus could break $100 billion
in 2005, triple the previous year's figure.

China's boom is stoking the world economy. It has
become a focus for investment goods, and offers
multinationals a cost-effective production base. But
how long can China sustain the rampant growth?

The state banks' distressed debts present as
incalculable a risk as the country's flimsy
infrastructure. Many companies are now powered by
private generators, giving them increased independence
from national utility providers. Projecting dramatic
shortages through the winter, twenty Chinese provinces
opted to ration electricity in early 2005.

Immeasurable environmental damage through air and water
pollution are fanning the problems, the economic costs
of which remain unclear for China and, indeed, the
world. Yue Pan, Deputy Minister for the Environment, is
already predicting the end of the economic miracle: "To
produce goods worth $10,000, we need seven times the
resources used by Japan, almost six times the resources
used by the U.S. and -- a particular source of
embarrassment -- almost three times the resources used
by India."

The challenges are threatening to spiral out of
control, as Beijing seeks to check unbridled capitalism
and quell flaring social tensions.

China urgently needs a social security system. Some 134
million people over the age of 60 already live in the
world's most populous country. By 2050, this age group
will account for 25 percent of its inhabitants. But
there's nobody to pay into their pension funds. As a
result of the one-child family policy -- the Communist
Party program, launched in the 1980s, to defuse the
population explosion -- social welfare contributions
have plummeted.

In the old days, China's state-owned companies provided
for the sick and aged. Because these have been
converted into joint-stock companies, Beijing is now
seeking to establish a hybrid system combining basic
state pensions with private retirement plans. But only
a small portion of the population in urban coastal
regions receives social security. The roughly 800
million Chinese in the rural regions are still
dependent on more traditional forms of support: their
families. Western economists are already warning:
"China will grow old before it grows rich."

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