Economic reform challenges fundamental worship of growth, wealth at any cost

During Premier Li Keqiang's four-nation visit to Africa May 4-11, he expressed his concerns about China's hoard of foreign exchange reserves.

"I'll be frank and say here that our relatively large forex reserves are becoming a huge burden on us, because the reserves have to be converted into base currency, thereby having a bearing on inflation," Li said.

The latest statistics suggest that by the end of March, China' forex reserves had reached US$3.97 trillion.

That figure is stunning, and more stunning is how fast the pile grows: it stood at US$2.13 trillion yuan in June 2009, suggesting that it took less than five years for it to double.

The forex stash has long been perceived as being too big for China's own good. The People's Bank of China Deputy Governor Yi Gang, in his dual capacity as administrator of the State Administration of Foreign Exchange, admitted late last year that further increase in the forex reserves would entail many "marginal costs."

These include "the tremendous impact on the environment imposed by huge exports, and interest paid by the central bank in the course of offsetting excess liquidity, which results as it acquires US dollars and increases the monetary base."

In hindsight, we should conduct a soul-searching reality check on the history of the rise of an export-led economy and the consecration of China as the global factory, which is part of the success story. In deploying this export-oriented strategy after World War II, Japan and some Southeastern countries had achieved high employment and speedy industrialization.

In the case of China, exporting demand to developed countries makes up for domestic deficiency in demand. Demand is also stimulated by government-steered make-work investment projects.

This is a crude, externally driven type of growth that far-sighted officials have long been considering putting an end to. But many powerful officials are displeased to hear this, since they have been addicted to this growth, given their strong affinity for the business.

Under such conditions, their genuine enthusiasm for growth stands in sharp contrast to their airy claims of pursuing social goals. Therefore, many government officials have degenerated into willing handmaidens to business. Sometimes that subtle but unmistakable role change can have disturbing effects.

Recently in Yuhang District, Hangzhou, Zhejiang Province, around 5,000 residents demonstrated to protest against a huge garbage-incineration facility planned in their neighborhood.

Following violent confrontations, dozens of people were arrested.

Similar confrontations involving environmental concerns have taken place before, but this case is unique in that some official mouthpieces choose to side with the government by suggesting that, instead of bowing to locals' demand, the government should resolutely push through the project after going through relevant procedures.

Some critics also weigh in calling this "Not-In-My-Back-Yard" (NIMBY) attitude shorted-sighted and selfish, saying the facility is vital in our pursuit of greater material prosperity.

Stigma of affluence

The Hangzhou government has said incinerators in the city's east, west, south and north are unable to handle increasing amounts of solid waste. As a result, 5,000 tons of untreated garbage are buried every day, causing serious pollution. Landfills for buried rubbish will run out of space in six years.

The logic runs like this: As growth and a good life — the common aspiration of the human race — is unquestionably a universal good, the blame can only fall on those residents who oppose the steps needed to make prosperity happen.

The problem of overflowing landfills closing in on every Chinese city is not just a stigma of affluence but also the crown of thorns China must bear as the global factory.

The flattering part of this "success story — perennial double-digit growth until recently — is well known, while the overwhelming stench emanating from the expanding landfills, the pervading smog, poisoned water and soil are better contemplated in private (if at all).

Occasionally, when these contradictions become overwhelming and the cognitive dissonance can no longer be handled, officials can still get belligerent, condemning those spoilsport China-bashers who cannot but harbor ulterior motives.

Thus, the much vaunted efforts of economic reform through changing the basic approach to growth are not making much headway.

First mentioned in the Ninth Five-Year-Plan (1996-2000), the transformation remained a proposal fraught with convenient interpretations.

During times of high growth, it's easier to flirt with the lofty notion of fundamental economic restructuring, but at the first sign of growth moderation or slowdown, the land rings with cries for economic stimulus.

There is no exact figure for the size of the latest stimulus, euphemistically termed a "micro" stimulus, but you can probably sense it in the air, in the construction sites mushrooming in the city.

Since growth has achieved a political, legal, and dogmatic legitimacy, it is self-justifying, self-strengthening, and all efforts to promote it by any means are forgiven.

Therefore, fundamental structural change would be painful, and require us first to confront such questions as what kind of growth we want, who would it benefit and at what cost.