II.The Dilemmas in the Development Process

The first weakness of China's economic development is the weak agricultural foundation which remains the prior obstacle for China's economic and scientific development.The weak agricultural foundation identifies itself in the place where the increase of demand further intensifies the pressure of arable land shortage.China is originally a country with insufficient arable land.According to the statistics released by Ministry of Land and Resources on February 26,2009,the area of China's arable land was 1825740000 acres by December 31,2008,decreasing by 290 thousand acres than previous year.And it was further close to the 1.8 billion acres red line.What's more,the per capita arable land was less than 1.4 acres,ranking behind 120th in the world.At the same time,the demand of Chinese people is increasing,causing a result that though China has enjoyed a 7-year consecutive grain harvests,we still have to import massive agricultural products.For example in 2009,China imported 42.55 million tons of soybeans,3 times of the domestic output,and imported 8.16 million tons of vegetable oil.However,the large scale of import increase also brings new challenges to our agricultural while it meets our domestic demand and mitigates the pressure on resources and environment.Recent years,trade on agricultural products has seen dramatically larger deficit where the deficit rose from 4.6 billion US dollars in 2004 to 23.14 billion US dollars in 2010.The import dependency of soybean,wool,rapeseed,and cotton has reached a very high level.By rough calculation,the degree of self-sufficiency of soybean currently is less than 30%,with edible oil 50% and cotton around 60%.The new market for soybean and wool was almost all taken by imported products.60%—82% of the new market for cotton was taken by imported products.The overdue occupation of the new market by imported products curbs the growth of agricultural products output corresponding with demand increase,thus the development space of agricultural production is somehow restrained.The risks brought by this effect will first be imported inflation,and another consequence is that the severe external dependence in terms of economic basis will add to greater hidden danger of economic security.

One of the reasons of China's recent price rising is the imported inflation,but the more important reason lies in the insufficiency of agricultural input.Agriculture is the foundation of national economy,and also the most front end of the entire economic chain.When insufficiency of agricultural input brings about lack of agricultural product supply,the price of the products will definitely be positioned at high level,and furthermore raising price of down-stream products.The insufficiency of agricultural input comprises of two aspects—insufficiency in production input and circulation input.The most typical example in agricultural production is the insufficient input of irrigation works.According to the research result provided by Wang Yahua,deputy director of Tsinghua University Center of National Situation Research,the irrigation investment in 2010 was less than 200 billion Yuan,not even reaching 10% of the transportation investment.In the planning economy era,the proportion of irrigation investment in GDP remained 0.6%—0.8%,and the highest was in“Great Leap Forward”time,which was relatively special.At the beginning of the reform and opening-up,the number fell to 0.2%—0.3%.After the severe flood in 1998,China resumed the stress on water conservancy facilities.But since the new century,the proportion again fell from 0.6% to less than 0.4% in 2008.Though some rebound was shown in later years,the number was only 0.58% in the year 2010,even less than the level in the“Cultural Revolution”era.

The major reason for insufficiency of circulation input lies in the imperfect circulation system for agricultural goods.On the one hand,farmers can't get useful market information in time,so agricultural products cannot meet market demand; on the other hand,enterprises' investment will lift the distribution cost,and finally the price will be added to agricultural goods.The common problem caused by these two insufficiencies is when the price of agricultural products was pushed up,farmers' income cannot be effectively increased.A significant part of China's economic growth mode transition is to boost domestic demand.Yet the engine of domestic demand must rely on exploration of vast rural market.However,according to economist Yao Jingyuan,“The current activity of home appliances and automobile going to the countryside seems to be lively.But when you analyze those methods carefully,you will discover a feature.That is,instead of helping farmers sell their goods and put more money into their pockets,all of these activities aim at selling goods to farmers and digging money from farmers whose money is little.” Therefore, to realize the dual goals of increasing farmers' income and stabilizing prices,the role of government should be brought into full display.Investment from government to agricultural infrastructure construction and circulation should be increased in order to lower transaction cost and benefit both farmers and consumers.

The second dilemma of China's economic development is the unbalanced regional development.China possesses a vast land,with different resource endowment and geographical features,thus a uniformed development strategy is difficult to formulate.Modernization construction requires suitable plans for different areas.As a result,unbalanced regional development occurs.In the 30 years of reform and opening-up,the eastern regions took the lead in development by utilizing the national opening-up policy and have achieved great success in its modernization drive.A couple of regions have approached the level of middle income countries.However,it is still a difficult mission to conduct the modernization drive in the vast western area.Statistics show a huge gap between the top ten provinces and cities and the last ten in terms of GDP.Such as the GDP of Guangdong,who ranks the first,is

In the 30 years of reform and opening-up,the eastern regions took the lead in development by utilizing the national opening-up policy and have achieved great success in its modernization drive.

89.6 times that of Tibet who ranks the last.The GDP per capita of Shanghai who ranks first is 6.84 times that of Guizhou who ranks last. Even within the top ten provinces and cities,there is an apparent gap.In terms of either GDP total or per capita,the top four—Guangdong, Jiangsu, Shan￣dong and Zhejiang absolutely win over the other six.Such statistics represent the current status of China's economic development: huge GDP, low per capita level and severely unbalanced regional development.

The uneven development among regions not only shows in economic output,but also in the level of production and degree of the perfection of economic system.The economy of eastern area has stepped into a course where three industries develop in a balanced way,especially with the rapid increase of tertiary industry.Modern service business such as banking,insurance,and logistics has become pillar industry for local economic growth,thus the relevant employees became the main force in consumption expansion.There's an interesting case.Shenzhen refused to participate in the Second Session of Farmers' Games of Guangdong 2011 for the reason that there weren't any more farmers.That sufficiently shows the modernization level of eastern coastal areas has reached a high degree.On the contrary,the economy of middle and western areas still highly relies on industries where resources and energy consumptions are very high,while their tertiary industry develops in a relatively slow rate,causing uneven development of the three industries.Reducing agricultural population and increasing farmers' income remain a heavy task for middle and western provinces and cities.In terms of institution and mechanism,eastern areas have formulated relatively improved modern market economy system with the final goal of minimizing trade cost from all links including production,circulation,distribution and consumption,thus promoting the efficiency of economic operation.However,the middle and western areas still have many out-of-date systems and mechanisms.As the center of Central China,Wuhan started the“laziness elimination campaign”in order to correct the system where public servants are indulgent to working lazily,inefficiently and undisciplinedly,and improve government efficiency to serve for economic development.

The ultimate goal of socialism is common prosperity,but unbalanced regional development is a major constraint towards this goal.How to realize balanced development in such a vast land? There is a long way to go.

The third dilemma lies in the discordance of the troika.Investment,demand and export are the troika for pulling a country's economic growth.But a big problem of China's economy is over-dependence on investment and export,while the demand is low.Since the reform and opening-up,especially since China's WTO accession,China's ratio of dependence on foreign trade always remains around the level of 60%.On the one hand,it helps China accumulate large amounts of foreign exchange reserve.To be simple,the country becomes wealthy,with its international economic influence strengthened and products that “made in China”scatting all over the world.At the same time,China purchases a lot of western treasury bonds with the reserve and becomes the“savior”for world financial crisis.But on the other hand,over-dependence on export will definitely put its economy into a status where international economic environment can easily influence it.Especially under the circumstances of the financial crisis,the international system featuring anarchy would lead countries to adopt policies which benefit themselves at other's expenses.Countries manipulate currency depreciation and carry out trade protection,making China,as the leading lender,suffer first and greatest.People's hard-earned money evaporates in the twinkling of an eye due to the irresponsible quantitative easing put forward by hegemonies.In the scope of production,the lack of demand caused by the crisis would quickly conduct to the domestic industries of China,making it hard for the small and medium enterprises to step foward.

If we observe from a more serious angle,we can see that as a big power,China definitely needs huge foreign trade as a backbone.But the point is that the dependence level is too high; the export and import are out of proportion in foreign trade.It will not only lead to financial risk brought by over-excessive foreign reserve balance,but also sharpen the so-called“China Threat Theory”in the diplomatic arena,claiming that China only knows earning money,but doesn't know it has to be responsible for mitigating crisis by providing the last consumer market for other countries.As a result,China should better coordinate the relations between domestic demand and external demand,and properly increase imports to promote international balance of payment.

Compared with trade,investment plays a more fundamental role in pulling China's economy,because the vast central and western China is still in the earlier stage of industrialization and is in need of high government capital investment for infrastructure construction,with the construction of roads,bridges and buildings remaining as the most direct way for pushing the economic development in these areas.For example,in the 2008 financial crisis,China's central government invested 4 trillion RMB to stimulate economic growth.At the same time,Hubei province,situated in the central China,made an investment plan including 12.06 trillion RMB.Such plan is almost 10 times the GDP of Hubei province.According to the officials of Hubei Provincial Development and Reform Committee,the economic development of Hubei province will mainly rely on the stimulation of investment for the long future where investment would take up more than 70% of the economic growth.On the one hand,the transformation of development pattern should be achieved by carrying out project construction and investment.On the other hand,the accumulated problems should be digested by investment instruction.In terms of areas,the 12 trillion RMB investment projects are divided into six categories: advanced manufacturing,modern service industry,infras￣tructure,agricultural water conservancy,ecological environment and social development.

China owns the largest population in the world.If it turns into purchasing power,China will become the largest consumption market in the world.

In the eyes of Stephen Roach,the famous economist,such a pattern of economic growth which overly relies on investment and export will be unsustainable.He gave the opinion in as early as 2009 that“it's time to raise an alarm to China's economy.”Mr.Roach said that investment and export take up a very large proportion in China's GDP,but the domestic consumption demand is not that much.Such unbalanced macro-economy will be hard to maintain for any country in the world.He said,“We can see that the 4 trillion Yuan economic stimulus package seemed to show growth effect on the surface,and suppress the unbalance fact under the surface again.This is like going to another extreme,because the GDP growth of the first three quarters was almost a net investment increase,which is a very uneven proportion.And it was such an uneven proportion that accelerated the economic growth.”

China owns the largest population in the world.If it turns into purchasing power,China will become the largest consumption market in the world,and become an endless driving force for economic development.This is an advantage which can be made full use of.So for China,the key link to shifting its economic development mode is to promote citizens' purchasing power,expand domestic demand,and establish sound interaction among the troika to provide a solid foundation for China's sustainable economic development.

The fourth dilemma is encountering environmental and energy bottleneck.The economy can't develop regardless of certain natural environment.Economic activities absorb natural resources from the environment,and in return would damage the environment.If the damage reached its limit,the environment would collapse,and the human economic activities can't go any further as well.Energy is the most important link for economic activities and environment.China is a big energy consumer.So the pressure of resolving environmental and energy bottleneck is extraordinarily large.

In 2010,China's GDP ranked second in the world,but the consumption of coal,fossil oil,iron and steel,and building materials in China ranked first,and the import of raw materials also ranked first.China is the world's second largest market of industrial wood pulps paper products,and the second largest importer of fossil oil.Its energy consumption per GDP is 8 to 10 times that of developed countries.It's chemical oxygen demand,sulfur dioxide and carbon dioxide emission all ranked first in the world.Since 1978,70% of the energy consumption structure in China has been coal,bringing about the rapid increase of green house gas emission.Such phenomenon not only severely damages the domestic environment,especially air quality,but also pushes China abruptly into the focus of global climate politics.China has to confront the huge pressure of responsibility towards climate change required by international community.On the one hand,developed countries,with EU as their representative,requires China to meet the binding emission reduction target so that those countries can win themselves leading power in climate politics.On the other hand,split within developing countries starts to emerge.Small pacific island countries who suffer severely from climate change starts to require China to take more emission reduction responsibility.For example,in the Copenhagen Climate Change Conference,representatives from small island countries proactively called for lowering the temperature control target from 2 ℃ to 1.5℃,and proposed that developing and large countries were also one of the green house gas emission powers who ought to bear the binding emission reduction target,especially China.China possesses the world's largest foreign exchange reserves,so it shouldn't grab the aids and funds from developed countries and compete with medium and small countries.What's more,China should provide more funds proactively.

At the same time,the bottleneck of China's energy condition sees itself in the contradiction between dependency on foreign energy and increase of international energy channel risks.The reasons of dramatic change in western Asia and northern Africa at the beginning of 2011 were complicated.It was influenced by the aftermath of Greater Middle East Initiative left by the Bush administration,and was pushed by the financial crisis.But in its core,the reason lies in the abundant oil resources in this area,causing the complicated influence on the vast oil consumption countries after the crisis.As a big oil importer,China finds itself more bound in benefit to western Asia and northern Africa areas.So such change also exerts an obvious impact on China's energy interests.First of all,the overall price of crude oil was raised,adding costs for China's economic development.Secondly,the change in Libya was the largest,and it was the only country that ended in war in this incident.China,however,has a good deal of investment in Libya.By far,the change hasn't met its end with the situation in Syria still being tense.And it is still unknown where the relations would go between Iran and western countries.In a word,as China's energy provider,the constant turbulence in western Asia and Northern Africa in these years will definitely intensify the domestic energy pressure of China.In addition,pirates around Indian Ocean and the Gulf of Aden are still rampant regardless of multi-nation crackdown movement.China and Russia can't reach agreement on energy price negotiation.The killing of Chinese sailors on the Mekong River exposed the hidden threat in Southeast Asia.All of them strike the alarm clock for China's energy supply safety.We can see that China's energy bottleneck is not only a simple domestic problem of development.It involves complicated strategic problems combining domestic and international forces.The resolution of it requires super-intelligent political wisdom and fine strategic planning.

Let's take a look at“made in China”dilemma.A.C.Milan and Inter Milan are two famous football clubs under Italian Milan and enjoy worldwide reputation.That's why these two teams are old enemies for a long period of time.Five years ago,a bribery scandal swept over the whole Italian football circle and made A.C.Milan suffer severely.But Inter Milan was exempted.So Inter Milan dominated Italian Serie A for many years with 5 champions in its hands until the 2010—2011 season when A.C.Milan returned to the top.What's interesting is that when A.C.Milan celebrated its reborn with the championship,their logo was:“Champion of Inter Milan: Made in China; Champion of A.C.Milan: Made in Italy!”That means the five-year championship of Inter Milan was in the condition that its major rival was in penalty,and its championships were just like the cheap and low-grade goods made in China.However,the championship of A.C.Milan was a genuine one which won over all the competitors,just like the high-grade top Italian luxury brands with top quality.We can see from this case that“made in China”,which was a pride of the Chinese people,now became a name of cheap and low-grade merchandises.

The reason of the situation of“made in China”lies in objective laws of economics.As a country which started to develop later than the developed ones,earning foreign exchange through low cost labor force and processing and Original Equipment Manufacturer (OEM) trade in the first stage of modernization construction is in accordance with the laws of economics,because this gives full play to China's comparative cost advantages.But when China ranks second in the total economic volume with 4000 dollars as its per capita income,the cost of labor and exchange would definitely go up.As a result,the profit of low added-value“made in China”industry would be distributed to smaller ones.What's more important,the time when China's economy entered top three with per capita income of more than 4000 dollars was just the crucial time of 2008 global financial crisis.On the one hand,domestic cost rose.On the other,due to the crisis,international demand dropped sharply.That definitely led China's low-cost manufactory enterprises to a difficult time.

In 1992,the founder of Acer Group Mr.Shi Zhenrong put forward a famous“smiling curve”theory in order to“reestablish Acer”. In the middle of the curve is production,and the left is research and development,belonging to global competition; the right is marketing,mainly local competition.Current production generates low profit with supply exceeding demand worldwide,but the added value of research and development and marketing is high,so the future of industry should head for the two ends of the smiling curve,which is enhancing research and development on the left,and emphasizing on marketing and service which are client-oriented. Nowadays,many Chinese enterprises remain in the assembly and manufactory phase,but lack patents of core technique and influence of high added-value brands.The result of it would be to survive at the cost of profits.When there is no profit,the enterprise has nothing to do but be eliminated out by the market.For example,according to a report provided by UBS at the beginning of 2008 (which was the year of financial crisis),that year might be the starting point of Chinese manufacturers suffering severe damage.Such prediction was right.Many enterprises in the Pearl River Delta simultaneously chose to close their business.Some planned to move to inner mainland,and some to the place outside China.Transnational enterprises also felt the flow of change.An investigation done by Booz Allen Hamilton and The American Chamber of Commerce Shanghai on 66 foreign funded manufactory enterprises in China on March 2008 showed that 54% of the enterprises interviewed felt that China was losing competitiveness compared with other low-cost countries.

At the same time,the low cost advantage of“made in China”is highly connected with China's high reliance on foreign trade.But under the WTO framework,this will cause the anti-dumping lawsuit from its trade partners.They would execute penalty duty on Chinese commodities,especially during the financial crisis.Currently,China is the country which receives the most anti-dumping complaints.And what's more,new trend started to take on.The US and Europe extended the trade protection goods against China from textile,light industry to heavy chemical industry such as steel and iron,non-ferrous metal and chemical industry,as well as high-tech industries such as new energy and electronic information.The scope has expanded from specific products to China's domestic economic policy,which will exert great influence on China's industrial structuring and economic policies and system,because China and developed countries will have more industry overlap after upgrading of industrial structures.In addition,carbon tariff will give China a huge impact since China is such a large green houses gas emitter.In a word,the low cost and high energy consumption strategy of“made in China”cannot sustain the tremendous foreign trade total volume of China.Under the circumstances of low domestic demand,if the wagon of export went on reducing speed,it would be difficult for China to see its economy develop at a successive high speed.

To view deeper,the cheap and low-grade merchandise of“made in China”is not only an economic issue,but more a political issue.Foreign public would not do research on China as deep as an elite expert.What they know about China stems mostly from the products produced by China.When the products bring them trouble and loss due to quality problem,it's difficult to let foreigners feel good about China.One big problem brought by China's rise is how to build up a good national image.And the image of China mostly is carried by Chinese enterprises and the products.So the image of Chinese enterprises and brands is the image of China.The promotion of the quality of Chinese goods is the best practice of public diplomacy.Though China started late,we can't stand still in the world by selling cheap shoes,socks,beverages,and toys forever.Looking back in history,every influential country must rely on their product innovation.Let's not mention German Siemens and Benz,American IBM,Microsoft and Apple first.The Netherlands,which is considered a“small country”,can generate world-class enterprises like Philip.Thanks to the innovative spirit,the Netherlands can create the stock system and securities dealing which led the modernization reformation of humanity.Until now,The New York Stock Exchange built up by the Netherlands migrants is still the center of international finance.It is the same that China must transfer from“made in China”to“created by China”in its economic developing path.China must make all efforts to pursue quality and brand value in order to build up the national image for a responsible China.

The sixth challenge is the ever increasing uncertainty of world economy.Since the reform and opening-up,China stepped on an opening economy path.This on the one hand helps China absorb capitals,technologies and managerial experience from developed countries and participate in global resource allocation,and on the other hand, puts China in front of the huge risk of international economic uncertainty.Current risks of world economy lie in the following aspects:

First is the irresponsible monetary policy of the US as a country whose currency is served as reserved currency.The international economic system and international political system is overlapping.The anarchy status of international political system will definitely influence the development of international economic system.Under the background of financial crisis,the innate of a country is to increase export and reduce import,thus inclining to a monetary policy to depreciate the domestic currency.In the crisis,the US continually implemented the so-called quantitative easing policy,increasing monetary supply and causing the continuous depreciation of the reserved currency—US dollars.The international trade system suffered severe impact because of this.It not only greatly influenced China's export,but also threatened the safety of US treasuries bought by China.

Second,the financial crisis made developed countries' demand decrease sharply,so China's export is in a severe situation.Developed countries remain the major destination of Chinese exports because of the sufficient purchasing power.But in the crisis,the US is suffering from high unemployment rate and long-term“no employment”increase.Japan's economy has been sliding down for a long time.European countries' debt crisis was even causing a second bottom line touching of world economy.The situation of developed countries directly led to the reduction of purchasing power.Though China's goods are cheap,they cannot resist the cold winter of economy.This was proved by the shutdown of many southeast coastal small and medium enterprises.

Third,the international financial system and energy system are influencing one another,causing the big fluctuation of world oil price.The biggest feature of international energy system is the huge fluctuation of oil price.The deeper reason of the huge ups and downs of world oil price is the US sub-mortgage crisis.At the beginning of the crisis,the price of gold rose and US dollars depreciated quickly,which brought about oil price rising which is counted by US dollars.But after the financial crisis,which was after September 2008,the expectation of world economic recession greatly surpassed the negative effect of US dollar depreciation,which brought about the panic that energy demand would greatly reduce.Therefore, oil price dropped dramatically.Until the beginning of 2009,the world economy started to show signs of rebound.It should be noted that the influence of 2008 world financial crisis on world oil price seems to be a drop brought by demand decrease on the surface,but the deeper meaning lies in the dramatic increase of oil prices before the overall crisis.The reason of this abnormal price rising is mainly the insufficient monitoring of western developed countries,especially reserve currency country on financial market,and let go of the international idle funds' speculative operation on massive raw material goods.This reveals the root cause of the extremely unreasonable international financial governance system supported by US hegemony,counted and reserved only by US dollars,and led by the US and European countries.In other words,the real reason of the skyrocketing of oil price is the US dollars impact on the financial level and the innovation on the financial market which was not effectively monitored and regulated.As a scholar put it after the financial crisis,the reformation of future international financial system should take the international energy system into account,or the single reform cannot radically solve the worldwide financial and energy crisis under the background of inter-dependence of the two systems.So,“the new international financial system with monetary,energy and finance as the basic framework means our objective is to build up a brand new Breton Wood system”.In other words,“floating exchange rate system under dollar standard system is the root of international oil price fluctuation.”It reflects the irrational US sole hegemony structure.The result is that as the origin of this financial crisis,the US plays a direct role in the world oil price trend.Such a role even exceeds the control of OPEC.Currently,the financial crisis is not over yet.Instead,severe economic and political issues such as European and American debt crisis,western Asia and northern Africa turmoil are in continuous fermentation.The possibility of world oil price fluctuation might exist for a long time.

In a word,the root of the current uncertainty of world economy lies in the uneven feature of world political and economic order.As long as the radical feature of this order remain unchanged,the US and its western alliance would take up all relative economic policies to transfer domestic crisis and influence the world's economic stability.Facing such objective environment,China's economy must take precautions and prevent risks.