GUATEMALA CITY -- As Beijing develops a reliance on fiscal spending to boost economic growth, a mushrooming fiscal deficit and ballooning public-sector debt will weaken China's long-term economic prospects. This is because economic growth bought with increased government spending is unsustainable and creates distortions that will cause imbalances in production structures.
It is bad enough that this will bring low-quality growth due to the inefficiency and corruption associated with government spending. All this pump-priming has also been ineffective as evident with the return of deflation.
Although the State Statistics Bureau indicates that fixed-asset spending was up by almost 26 percent for the first five months of the year, most of the spending on fixed assets reflects capital expenditures by the government and state-owned enterprises, or SOEs. Consequently, the central government or its supplicants account for more than two-thirds of investment in the country and such spending outpaces gross domestic product growth by a factor of three.