During a seminar at the University of Macau, the economist explained that corruption in the country is closely linked to a growth model based on investment in large-scale infrastructure and real estate projects.
“This model has generated the largest wave of corruption in human history,” Tao stated, noting that these massive investments by local authorities in the country have created opportunities for financial excesses and “corruption” among government officials and businesspeople.
Tao added that these trends intensified following four rounds of macroeconomic stimulus by the Chinese government after 2009, which contributed to the formation of a “complex economic structure,” marked by high levels of local debt and a pronounced real estate bubble.
Although this approach has delivered decades of high growth, it has also created “systemic distortions,” including industrial overcapacity, rising inequality, and debt accumulation, according to the economist.
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Data presented by the researcher during the seminar illustrate the scale of the problem, with local government debt rising sharply over the past two decades, from 10 trillion yuan (1.25 trillion euros) in 2010 to approximately 105 trillion yuan (13.125 trillion euros) in 2022.
The researcher emphasized that most of the loans taken out by local governments were spent on infrastructure projects described as “unconventional” and “oversized,” that is, beyond the needs of the population.
China, the scholar described, currently has an economy “anchored in state control of strategic sectors,” including resources, energy, and key industries, along with a banking system that exercises “strict control over credit allocation.”
However, these centralized characteristics coexist with a competitive private sector focused on the production of export-oriented consumer goods, an essential driver of China’s integration into the global economy, and the origin of the so-called “Chinese model” of governance.
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A key problem, Tao said, is the state monopoly on land supply, which has become a major source of revenue for local governments, generating significant income through land concessions while sharply increasing their debt. However, much of these funds has been channeled into “wasteful or oversized” infrastructure, he described.
The country’s real estate sector, long a pillar of growth, is now under pressure, with Tao pointing to weak demand and uncertainty regarding the future value of properties, despite high prices. “Now the real estate bubble is bursting; nobody wants to buy,” he described.
As a possible solution, Tao proposed easing restrictions to allow individuals to purchase land directly from the government to build their own homes, which, according to the professor, could stimulate domestic demand and retain capital. These reforms could boost economic growth by about 1.5% per year over the next five to ten years, he added.
Despite the challenges, Tao stated that China has demonstrated its ability to adapt, pointing to the growth of digital platforms such as the e-commerce company Alibaba and the ride-hailing platform Didi, which have created jobs and reduced the cost of living.
Still, he cautioned that the transition to a more sustainable and inclusive growth model will require the dismantling of entrenched monopolies and a rebalancing of the state’s role.
