When I foresaw in May last year that China's macroeconomic growth would slow, I didn't mean to bad-mouth the Chinese economy. Maintaining a 5-6 percent growth rate is already a remarkable achievement. It's unprecedented for a country to maintain a growth rate of almost 10 percent for 30 years. Eight percent growth rate for 20 more years is untenable. The downturn of the Chinese economy therefore is a natural trend.

In order to evaluate China's economic growth, we need to refer not just to the GDP data from China's National Statistics Bureau, but also to corporate profit margins. If most of the companies make money, it's evidence of a booming economy.

The decline of China's growth rate started as early as 2007. Suffering from overcapacity, the downward trend will continue in the long term. Judging from the declining prices of production materials (coal, steel) and the declining Keqiang Index (electricity consumption and lending), China's economy is in recession. Private enterprise investment is in decline. Economic growth is mostly the result of government investment. Consumption remains sluggish, except for gold. The profits of both state-owned enterprises and foreign-funded enterprises are declining. A drop in rates of return has led to an increase in the loan-to-deposit ratio.

Judging from the development of Japan and the Four Asian Dragons -- Taiwan, South Korea, Hong Kong, and Singapore, the economic development comes in like three descending steps. Of the four "dragons," Taiwan's growth rate from 1962 to 1980 was 10 percent, from 1980 to 1996 it was 7.6 percent, and has been 4.3 percent ever since. If the mainland could keep up Taiwan's growth rate, it would be quite an achievement.

During Japan's economic downturn, its rate of over-capacity reached an incredible 33 percent. China's rate of overcapacity in 2010 reached the same level. Going down the same path would not be a surprise. In recent years, China's rate of return on investment has already dropped.

China started a lot of construction projects. In 2012, construction projects accounted for 134 percent of GDP, with new projects making up 60 percent.. From 2009 to 2012, total investment in fixed assets reached 1.64 trillion, which is equal to China's 2012 GDP. No country would be able to sustain long-term growth under such huge investment.

When most of the enterprises are unable to make a profit, who will be responsible for the huge investment in fixed assets? If the government continues to invest, it will have difficulties in paying off its debts in future.

In the long run, China should continue to work towards building a market economy, while deepening reform. Only pro-market reforms can bring back China's economic boom.

Wei Sen is a professor with the School of Economics, Fudan University.

This article was translated by Li Huiru. Its original unabridged version was published in Chinese.

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.

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