In the first half of this year, China's economic growth rate reached 11.5 percent, a figure that has peaked at 11.9 percent during this second quarter; both classic indications of China's still-booming manufacturing sector. The day after the National Bureau of Statistics made these announcements, the central bank announced an interest rate increase of 27 base points, while the State Council reduced the interest-tax. But beyond these measures, it is predicted that more tightening policies will emerge soon.

This round of macroeconomic adjustments, which started in the latter half of 2003, sought to use targeted strikes at the economy in order to reduce its speed.  But the more than four percentage point disparity between the target rate of eight percent and the realized rates suggests that these adjustments are failing. Instead of having a soft landing, China's economy has become a runaway train.

The goal of macroeconomic adjustments is to smooth over cycles and foster consistent growth. Thus, these policies tend to focus on the short-term. But sustainable economic growth cannot be purely solved in this way-- for example, debt incurred by public projects like social security. Indeed, some experts say that the social security system alone will incur debts above one trillion yuan. In the absence of solving these problems, China's sustainable economic growth will always be completely dependent on export and investment.

But China doesn't want this growth model. Facing the 1997 financial crisis, the Chinese government laid hopes on jump-starting domestic demand. When consumption continued to be sluggish, the Chinese government intervened with investment. For the past ten years, consumption has remained low, largely because Chinese do not feel the financial security to spend more freely. Of more fundamental concern, they already must bear the costs of social security, medical treatment, education and housing on their own.

During past deflationary periods, common citizens lived a hard life, and the country was unable to repay debt to the public. But today, China's wealth is growing rapidly, and it is high time that the government repaid history's debts and worked to solve the basic problems faced by Chinese today. If the government misses this chance to shift its investment focus to public service, there will be severe consequences the moment the economy slows down.

Chinese will consume goods and services bravely if only free of other economic burdens, and only then can the government faithfully can say China's economic growth is not dependent on investment and exports. This is our opportunity to shift from foreign to domestic demand –driven growth.

Original article: [Chinese}