Stop 'pressing the brake and accelerator together'
- By Gao Liankui
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E-mail China.org.cn, April 23, 2014
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Rebalancing time [By Zhai Haijun/China.org.cn] |
![Rebalancing time [By Zhai Haijun/China.org.cn]](http://images.china.cn/attachement/jpg/site1007/20140423/001ec949c22b14c1b12305.jpg "Rebalancing time [By Zhai Haijun/China.org.cn]")
China's economic growth continued to weaken in the first quarter, but more worrying still is the twisted macro-economic policy.
The crux of the current economic problem doesn't lie in the 4-trillion-yuan (US$642.05 billion) stimulus plan, but in the tightened monetary policy, which has led to mounting government debt and excess production capacity.
Under the monetary policy, the reserve ratio of major Chinese banks stood at 20 percent. This meant that 75 percent of the country's currency was out of circulation, and it resulted in the recent cash squeeze.
When China witnesses rapid economic development, it is ridiculous to talk about excess production capacity, because the biggest concern for a fast developing country should be insufficient production capacity. For Chinese enterprises and industry associations, the excess capacity was slight; the general economic slowdown caused by the tight monetary policy was more serious. Most Chinese enterprises made their production plans expecting to see annual GDP growth of between 8 percent and 9 percent, but the reality was that the Chinese government tuned it down to 7 percent because of public opinion. This is the main reason for the present excess capacity.
As there was only a small amount of currency circulating in the market, entrepreneurs had no money to invest, and the government had to invest and increase its debt. Therefore, it is highly probable that one day, due to the heavy debt, the government could not invest any more money, and the Chinese economy will slump.
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