BEIJING – China’s government is bracing for an eruption of social unrest and environmental damage over the next decade as its economy slows and its historic appetite for foreign investment wanes, according to a new, sobering report from China’s premier think tank.
In its “China 2030” report, the official think tank, the State Council Development Research Center, said the world’s second-largest economy is at a major crossroads after years of fast growth. The findings, published in The New York Times on Thursday, are likely to fuel debate over what Beijing should do to slow what it says is a dangerous debt bubble that threatens to crash the economy.
The development center’s report estimates the country’s current economic growth rate at 6.5 percent, sharply lower than the 7 percent previously estimated by private analysts and the government. Without economic reforms, it warned, China could slide into a familiar recessionary trap – if it avoids problems threatening to fuel social unrest.
“Increasingly, the most formidable threat to China’s stability and prosperity is social unrest,” the report said. “To keep China’s social stability, its economy must grow and grow fast.”
It specifically identified an “irrational consumption” – known to economists as “consumerism” – that it said could lead to financial chaos.
In particular, it pointed to people shopping for things they do not need or view as necessities to gain a more secure standard of living.
“In situations where production is reduced,” the report said, “people try to find discretionary or temporary income.”
Such “barter” activities were commonplace, especially in China’s remote outposts, the development center said. Shops would sell goods they thought their customers didn’t need, while their citizens bought goods to secure them for themselves.
“As soon as people get to a certain level of affluence and see that their income growth doesn’t really match their consumption, they begin shifting to barter,” the report said. “They substitute good-for-good relationships and the use of assets for good-for-bad relationships, the use of goods for services, and the use of goods for other valuables.”
Such behavior has destabilized economies in many countries and helped spur social unrest. In China’s case, the focus on luxury goods poses additional risks.
“Basically, China is now a consumerist society, and luxury products are a key element of that,” the report said. “Countries that depend on exports tend to be commodity-based and so have their own commodity-based bubbles, so wealth inequality is on the rise.”
China’s economy grew at an annual rate of about 10 percent over the past decade, more than double the United States’. But economists, financial industry players and foreign businesses widely expect it to slow to a rate of around 5 percent or less over the next few years.
Much of the blame is being laid at the feet of Chinese policymakers for pursuing rapid economic growth, which economists say has led to growing debt. To meet this challenge, the report argued, Beijing must significantly scale back its reliance on loans from state-owned banks to grow the economy.
In most countries, borrowing on private banks is a long-established practice. But in China, the report said, this practice “has persisted despite public concerns over sound banking supervision and credit risks.”
On Thursday, the government was scrambling to bolster a real estate developer, Evergrande, that had been mired in investigations for corruption and overspending. The real estate company is one of China’s biggest developers and a major international investor.
On Tuesday, the China Securities Regulatory Commission said it would press for Evergrande to set aside more than a third of its earnings as capital to clear debt, after early indications that the company could not meet regulatory requirements.