Quality is more important than speed

Usually after China elects a new government, local governments initiate a large wave of construction projects and investments to boost economic growth. However, China cannot repeat this cycle now because of the looming debt crisis and inflation bubble, says an article in the 21st Century Business Herald. Excerpts:

Chinese local governments have accumulated a debt of more than 10 trillion yuan ($1.59 trillion) in the past few years, about 20 percent of China's GDP.

Zhou Xiaochuan, the governor of China's central bank admitted last week that 20 percent of the government's debt is risky. The debt repayment periods are concentrated so the pressure is big for local governments.

As urbanization is one of the main motivators for China's economic growth in the next decade, local governments must refrain from large-scale debt-raising financing and investing deals, which will not only aggravate the debt pressure, but also encourage more hot money to flow into the real estate market. That is why the central government accentuates the quality of urbanization but not the rate.

Like it or not, China has already entered a period of slow growth. Local governments should not go against the overall trend, but they should take this opportunity to upgrade industrial structures and carry on a series of reforms, including the reforms of the government system and reforms of national wealth distribution system and tax distribution system.

The central government should send clearer messages to local governments that it is the time now to end investment-driven growth and show more patience to solve the problems due to the past fast growth.