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IS CHINA'S REBOUND FOR REAL?
Some economists say that too much of China's growth is coming from investment in inefficient state-owned enterprises and that stimulus policies are diverting the country away from long-needed reform.

David Pierson

Los Angeles Times, October 21, 2009

When China releases its third-quarter gross domestic product figures Thursday, it's likely to post growth that's the envy of a recession-weary globe. Some analysts project the world's third-largest economy will easily surpass the government's 8% expansion target.

China's exports are rebounding. Tens of thousands of laid-off workers are being rehired. Stocks and real estate have been on a tear.

Though economists credit Beijing's policies for carrying the country through the worst of the global crisis, some question the sustainability of the recovery. Some say that too much of China's growth is coming from investment in inefficient state-owned enterprises and that current stimulus policies are diverting the country away from the reform long needed to balance its economy.

"They're moving the economy in exactly the wrong direction," said Yasheng Huang, a professor at the Massachusetts Institute of Technology's Sloan School of Management and a leading critic of China's economic strategy.

At the heart of China's recovery is a $585-billion government stimulus package and a torrent of new bank loans totaling $1.27 trillion this year. The injection has kept industry humming, maintained employment at reasonable levels and launched billions of dollars' worth of public infrastructure projects.

Beijing has also increased spending on health, education and pension plans. To stimulate domestic consumer spending, the government has offered subsidies for purchases of fuel-efficient cars and home appliances.

But some complain that those policies still favor large, government-owned firms at the expense of small businesses in the private sector.

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