GDP target of 7.5% 'may be possible', expert says
Updated: 2014-03-10 12:04
By Amy He in New York (China Daily USA)
China's GDP target of 7.5 percent for 2014 "may be possible" but the rate "is not sustainable", said longtime finance professor Mei Jianping.
"For sustainable long-term growth, the rate is probably 5 percent - and 5 percent is not bad," Mei said at the Cheung Kong Graduate School of Business (CKGSB) in commenting on Premier Li Keqiang's GDP announcement at the 12th National People's Congress meeting in Beijing..
"While I don't believe that China can catch up with the US in terms of the overall size of the economy in 10 years, it can probably do it in 30 years. And ladies and gentlemen, even if it can do it in 30 years, that is already a remarkable, remarkable achievement," said Mei, a professor of finance at CKGSB and the director of the CKGSB Real Estate Research Institute.
China is at a "crossroads" in its economic development, Mei said on Thursday, where quantity of growth is overemphasized compared to quality of growth. Of the major drivers of economic development, China is exhausting labor input and investment, which is a model that "can't go on forever."
In contrast to the US, whose growth is sustained by more efficient use of resources, there is a limit to how much longer China can rely on labor and investment, he said.
"You can see that there are a lot of indications that China has negative resource efficiency, because China right now is using 45 percent of the world's resources, but only produces 12 percent of the world's GDP," Mei explained.
China's inefficiency at using its resources means that there is built-up excess in the system, he said, and is illustrated by Friday's news that Shanghai Chaori Solar Energy Science & Technology Co will become China's first-ever corporation to default on bond interest payments.
"China's going to have its first bond default. Despite the fact that it already has an 8 trillion yuan bond market, it has never had a default, so that means a huge amount of excess has been built into the system," Mei said.
Historically, the Chinese government has bailed out failing companies and companies with bad debt, and Mei said it was this excess that China has to avoid going forward.
"Let's say I'm going to give you a reward: You can go to any Michelin-starred restaurant in New York, and I'll pay for it," he said. "You can do it for five days. There is only one catch: you're not allowed to go to the restroom. Can you do it?"
Mei said that kind of analogy can be used for China's economic growth.
"For the last 30 years, China has been eating up a lot of capital, but it never seriously goes to the restroom. So one of the most amazing characteristic is the US system was the financial crisis. It's bad, but it's like somebody going to the restroom. You take a break and get rid of the excesses, then you become healthy. China hasn't had a chance to do that," he said.
Mei Jianping, professor of finance at the Cheung Kong Graduate School of Business, speaking about the Chinese economy at CKGSB's New York headquarters. Amy He / China Daily
(China Daily USA 03/10/2014 page2)