2010-06-29 08:15

Therefore, I don't think China's local governments' infrastructure constructions are vanity projects. On the contrary, the investment environment created by the local governments is conducive to the rapid development of local enterprises. Taxes imposed on the enterprises, too, can bring benefits to the authorities. That's why it's too early to evaluate local authorities' performance now.

Third, bad loan is a dynamic subject. During the early days of the global financial crisis, US experts and the US government both assumed the scope of non-performing assets was controllable, and the damage caused by the subprime crisis would blow over soon. But then the market began to lose confidence in the financial system, compelling investors to withdraw their funds that led to a sharp drop in the market. The spiraling effect created more non-performing assets, which hit market confidence further and eventually created a vicious circle.

A new problem deserves to be dealt with action rather than blaming one factor or another and intensifying it. It is very important to stabilize the market in order to restore public confidence. Only in this way can we check the increase of non-performing assets, and overcome the problem with a good momentum of economic growth.

What China needs most now is economic growth, especially because the world economy is yet to recover fully. But at the same time, the authorities should reflect on their economic policies. If they move ahead ignoring or repeating their mistakes, they could end up undermining China's economic growth.

Local governments should not be blamed for investing in strengthening the social security system and promoting the development of small- and medium-sized enterprises because they do not thwart economic growth. Exaggerating the negative impacts will only create more market panic. The problems can be solved through faster economic growth but can worsen, too, if the market loses confidence. Fortunately, a lot of economists at home and aboard, including me, have faith in the future of the Chinese economy.

The author is deputy dean of the School of Economics and professor of finance, Fudan University.

(China Daily 06/29/2010 page9)