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Lead economy on right track (2)

By Ma Guangyuan  (China Daily)

08:58, July 25, 2012

A continuing economic decline in essence means that now is time for China to bid farewell to its fast-growth economic model. Under the influence of combined factors, ranging from the depletion of its population dividend and economic restructuring to its industrial upgrading and accelerated environmental protection since the 2008 global financial crisis, China's potential economic growth rate has declined from 9 percent to 8 percent.

However, a series of economic stimulus packages launched amid the global financial crisis prompted China's abnormal economic growth. The adoption of stimulus policies interrupted the country's economic restructuring efforts, too, and helped such overproduction industries as real estate, steel, ship-building and cement, thus fueling a new round of irrational growth.

The "marginal effect" produced by the country's investment and export-driven economic growth was given full play during the past decade but is now on the ebb. In comparison with a soft driving force behind the real economy, a boom in the real estate sector and soaring housing prices have further crippled people's purchasing power and hampered government efforts to boost domestic consumption.

A continuous economic slide once again proves that China's economic growth model, based on investment, exports and low value added manufacturing, has now become unsustainable. To put the blame of the country's economic slowdown on some external factors will only prompt the authorities to again come up with short-sighted measures to stabilize economic growth, which obviously cannot solve the fundamental problems facing the economy.

Government-spearheaded investment or loosened monetary policies cannot resolve the issues of overproduction, small and medium-sized enterprises' (SMEs) struggle for survival, application of excessive administrative power to economic activities, and monopoly and industrial upgrade.

The side effects of a large-scale economic stimulus package implemented by China four years ago prove that short-term economic growth measures - instead of profound reforms and structural adjustments - will sooner or later force the national economy into a bigger potential crisis.

To maintain a certain speed of economic growth the national economy should not be subjected to high-speed operation disregarding the law of economics. Most importantly, China has to be more tolerant toward economic deceleration and determined to eliminate backward industries, and take measures to alleviate tax burdens of enterprises, especially SMEs, to create a good environment for its overdue economic transformation.

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