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Monday, Aug. 22, 2005

Unhealthy fixation on 'miracle' growth


HONG KONG -- In the late 1970s, after China had emerged from the frenzy of the Cultural Revolution and it was again politically correct to talk about development, economists and officials focused on two principal economic indices: GVIO and GVAO, or gross value of industrial output and gross value of agricultural output.

Since development of industry was seen as crucial to economic modernization, newspaper articles regularly talked about annual increases in the gross value of industrial output, as though that showed definitively that China was on the right track and that the economy was developing.

But in those days, of course, China was a command economy. Central planners in Beijing decided what to produce and how much to produce, and the word was passed down to the provinces and municipalities and from them to the enterprises. At each level, officials would pledge not only to meet their assigned quotas but to over-fulfill their production targets and, the following year, one would read about another proud increase in GVIO.

The only problem was that, often, the factories' products ended up in warehouses since they were not what people wanted. But that made no difference. Everything produced had a value and the total value of the country's products continued to increase year after year.

The quality of items produced was not of great consequence since, by and large, Chinese consumers had little choice. If they did not buy from the state stores, they did not buy at all. Little care was taken to provide variety or to appeal to individual tastes.

After 1979, when China began to export, much greater care had to be taken to ensure the quality of goods produced. Items that fell short of the required export standards became much sought after when they were sold domestically.

Once China embraced the market economy, it was no longer possible to boast of production. The key numbers were no longer production figures, but sales figures. China's long fixation with GVIO came to an end.

Now, it seems, Chinese officials are fixed on another number, which has replaced GVIO. Now, we are told each year about the increase in gross domestic product. And China's GDP has risen at a spectacular rate for the last 26 years. Thus, last month, the National Bureau of Statistics announced that China's GDP grew 9.5 percent in the first half of this year. China's GDP is now well over $1 trillion.

Just as China had to take stock 25 years ago about the importance of annual increases in GVIO, the time has come for leaders in Beijing to reassess their single-minded pursuit of GDP growth.

Chinese officials are aware that GDP growth continues at a huge cost in terms of air and water pollution, of quality of life, of health care and even in terms of China's relations with other countries.

According to the World Bank, 16 of the world's 20 most polluted cities are in China. The World Bank has also estimated that air and water pollution cost the Chinese economy up to 8 percent of GDP. The Chinese government has passed environmental legislation, imposed new vehicle emission standards and exhorted officials to make more efficient use of resources. However, in the end, local officials know that they will be judged by GDP growth, not by more efficient use of resources or by pollution reduction.

This situation was put in stark terms by Pan Yue, deputy environment minister, when he gave an interview earlier this year to Der Spiegel.

"We are using too many raw materials to sustain this growth," Pan said. "To produce goods worth $10,000, for example, we need seven times more resources than Japan, nearly six times more than the United States and, perhaps most embarrassing, nearly three times more than India."

Due to this inefficiency, China must scour the world for natural resources, in the process creating rivalry with other countries, especially the U.S. and Japan.

"Acid rain is falling on one-third of the Chinese territory," Pan said, "half of the water in our seven largest rivers is completely useless, while one-fourth of our citizens do not have access to clean drinking water. One-third of the urban population is breathing polluted air."

Clearly, this is a very dangerous state of affairs. The Chinese government should no longer be mesmerized by GDP figures and focus instead on the health and welfare of the 1.3 billion Chinese people. Otherwise, there may be no one left to enjoy the fruits of the economic miracle.

Frank Ching is a Hong Kong-based journalist and commentator.


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