Ken Rogoff is worried about "the sustainability of China's growth paradigm":
Is China Immune to Crisis?, by Kenneth Rogoff, Commentary, Project Syndicate: Addressing the annual World Economic Forum in Davos, Switzerland, Chinese Premier Wen Jiabao explained his government's plans to counter the global economic meltdown with public spending and loans.
He all but guaranteed that China's annual growth would remain above 8 percent in 2009. ... But does the Chinese government really have the tools needed to keep its economy so resilient? Perhaps, but it is far from obvious. ...
With roughly $2 trillion in foreign-exchange reserves, the Chinese do have deep pockets... Many leading Chinese researchers are convinced that that the government will do whatever it takes to keep growth above 8 percent. But there is a catch. ...
Simply put, it is far from clear that marginal infrastructure projects are worth building, given that China is already investing more than 45 percent of its income, much of it in infrastructure. ... In fact, China's success so far has come from maintaining a balance between government and private sector expansion. Sharply raising the government's already outsized profile in the economy will upset this delicate balance leading to slower growth in the future.
It would be preferable for China to find a way to substitute Chinese for U.S. private consumption demand, but the system seems unable to move quickly in this direction.
If government investment has to be the main vehicle, then it would be far better to build desperately needed schools and hospitals than "'bridges to nowhere," as Japan famously did when it went down a similar path in the 1990s.
Unfortunately, China's local officials need to excel in the country's "growth tournament" to get promoted. Schools and hospitals simply do not generate the kind of fast tax revenue and GDP growth needed to outperform political rivals.
Even prior to the onset of the global recession, there were strong reasons to doubt the sustainability of China's growth paradigm. The environmental degradation is obvious even to casual observers.
And economists have started to calculate that if China were to continue its prodigious growth rate, it would soon occupy far too large a share of the global economy to maintain its recent export trajectory. ...
One way or the other, the financial crisis is likely to slow medium-term Chinese growth significantly. But will its leaders succeed in stabilizing the situation in the near term?
I hope so, but I would be more convinced by a plan tilted more toward domestic private consumption, health, and education than to one based on the same growth strategy of the past 30 years.