Corruption Clean-Up Main Reason For China’s Slowdown

July 27, 2016 – China’s move to eradicate corruption has aggravated its economic downturn, says a former People’s Bank of China policy-maker.

“If you look at the slowing down of the Chinese economy, I would argue that the number one reason is not rebalancing,” Dr David Li said in an interview. “(It) is that policy makers are trying to clean up a lot of bad practices of local government” – in other words, corruption, he said.

The world’s second largest economy is expected to grow by about 6.5 per cent this year – still faster than most countries, but a far cry from the 9.8 per cent seen in previous decades.

“Corruption was helping the economy grow, to be very honest. However, that growth was not sustainable, because many people in society became very upset with the widespread corruption,” said Dr Li in the exclusive interview to be telecast tomorrow.

A number of economists have blamed China’s slowdown on its rebalancing strategy as it moves away from an export-driven economy to a focus on increasing domestic consumption. In developed countries such as the United States, domestic consumption can account for up to 70 per cent of the economy.

Dr Li, however, argues that consumer spending in China is already high enough – higher, in fact, than what the official statistics claim.

“By my calculation, private consumption is already 46 per cent of the economy. And it’s still increasing by 1 per cent a year, over the past seven years. Whereas the official data is still 38 per cent,” he said.

Criticising the way the Chinese government gets its data on private spending, Dr Li – who is currently director of the Center for China in the World Economy at Tsinghua University – argues that middle and higher income households in China are reluctant to cooperate in national surveys about household spending. This means government data is skewed and mainly reflects the spending patterns of lower-income families.

“The Chinese national bureau of statistics doesn’t do justice to the economic restructuring. Actually, they are not conveying the right message to the rest of the world, causing unnecessary concerns outside China,” he added.

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