Greed and 'good' GDP

Once again, greed has reared its ugly head after a hiatus of 18 months. Investors are tripping over themselves for a piece of the action in the world's second best performing stock market. Recently, about half a million new trading accounts are opened in China and the index went up to 3296, a level not seen since June 2008.

Many are optimistic that the country can attain the government-set goal of 8% gross domestic product (GDP) growth for the whole year. Due to the emphasis of the government on the GDP growth, officials are ignoring other aspects of development and environment protection. Funds and efforts have been mainly devoted to sectors that could have an immediate impact in boosting GDP growth.

Since China began to suffer a serious economic slowdown last year, there are lingering fears that massive unemployment will result in widespread social unrest. As such, Beijing gave up its five-year-old macro-economic control policy and set out on its political task of ensuring a 8% GDP growth for this year.

The quick recovery of GDP growth has aroused concern among some Chinese officials and economists that "GDP worship" is making a comeback. Retail investors should take statistics released by the China government with a huge pinch of salt. Some of the GDP figures are very 'good looking'. But they do not mean the growth of social wealth. On the contrary, they are instead achieved with a waste of social wealth. For example, a big bridge can be built and some GDP can be recorded. The bridge can be dismantled and rebuilt again. In this way, the GDP is multiplied twice but it is a huge waste of resources.

It can be expected that, once China successfully rides out the current crisis and resumes high-speed growth, the government may again have to impose macro-economic controls to correct the problems of imbalanced development and pollution. It seems that, unless China can discover a better mode of development, it will find itself difficult to break out of this vicious circle.