China's government has promised to clamp down on industries with excessive growth to ease what it sees as overheating in some areas of the economy, and to make better use of the country's limited energy supplies. But economists interviewed by RFA recently were skeptical that the cherry-picking approach would work.
Edward Steinfeld, associate professor of political science at the Massachusetts Institute of Technology said recent policies aimed at cooling the overheating economy were unlikely to have much effect. "I think what we're seeing today are basically verbal signals, encouraging bankers and other lenders to shift toward some sectors, but not the sort of intrusive interventions that we've seen in the past," he said, referring to former Premier Zhu Rongji's soft landing in the mid-1990s.
For example, on March 10, the State Development and Reform Commission (SDRC) announced it would tighten rules for approving steel-plant expansions or new construction projects by regulating land acquisition, energy consumption and technology. But the announcement left a loophole, saying the limits would be applied to projects that "are not in line with the industrial policy and development plan." Concerns have also been voiced over rapid growth in the aluminium and cement sectors.
Steinfeld said the overall professionalization of China's commercial banking system was a far higher priority than sector-specific tinkering. "The government would probably be better off spending more of its limited resources on trying to encourage effective regulation, effective commercialization of banks, and other financial intermediaries rather than trying to encourage those intermediaries to lend to particular sectors," he said.
Other economists said the moves would fail because they were interfering with market forces. "To judge which sector is overheated and which one is not is also a difficult method," Gregory Chow, economics professor at Princeton University told RFA correspondent Michael Lelyveld. "In the U.S. two or three years ago, we were not able to judge when the stock market was overheated... People didn't know. Otherwise, they wouldn't be investing," he said.
Chow said Beijing should allow free operation of the market while providing needed assistance to poorer regions and communities. "One, I think that the rich areas should be allowed to get richer...I also agree that they should divert resources to help the poor."
Others pointed to low interest rates, which were masking a continuing and hidden over-employment situation in the state-owned sector. "One reason the government is hesitant to allow interest rates to rise to market clearing levels is that they would result in interest costs for many of the state-owned enterprises and would push them into bankruptcy and require liquidation," said Gary Jefferson, professor of international trade and finance at Brandeis University.
"The government is effectively using subsidized interest rates through the banking system in order to sustain employment in the state sector," he said. China's leadership is already strongly concerned about the political and social cost of the widening gap between rich and poor, which it has identified as a threat to social stability.
China's central bank has ruled out any immediate increase in interest rates this month to deal with inflation. But it reserved judgment on a future increase, and it did not address the need for higher rates to cool down investment. Jefferson said the government can still help poorer areas without targeting individual industries if it allows interest rates to rise to market levels.
"Once the interest rates are set at a more sustainable level, then it would be appropriate for the government to intervene using a set of taxes or subsidies to try and give certain public priorities an advantage," he said.
All of the economists interviewed by RFA voiced doubts about Premier Wen Jiabao's goal of lowering GDP from 9.1 percent to seven percent this year. Exact management of GDP rates would be impossible unless statistics were manipulated, they said.
"The simple answer is that they cannot calibrate the growth of GDP for the simple reason that much of GDP growth in China is due to market forces," Chow said.#####