What about the future?

Economists do worry that in the course of China's recovery from the sub-prime financial crisis, the process of economic reform had stalled, and in some dimensions, even reversed. Going forward, these handicaps might curtail the country's future economic growth.

One concern is the thinking that the government should increase its ownership of the economy to more effectively control the macro-economy.

China's 4 trillion yuan (US$594 billion) stimulus included funneling large funds to state-owned enterprises. State ownership has increased at the expense of private enterprise.

State-owned enterprises are useful for their quick response to orders from the central government. However, greater state ownership can increase micro-economic distortions.

With their government financing, state-owned enterprises can more readily engage in inefficient activities. For example, in recent months, state-owned enterprises have been the top bidders in property auctions, fueling already overheated real estate markets.

GDP fetish

Another concern is that, in recent years, the central government has focused too much on GDP growth.

Chinese government officials, whom I recently taught, were very clear that GDP growth was their KPI (key performance indicator). They had certainly mastered Singapore government acronyms!

This single-minded focus on economic growth has resulted in large societal and economic costs.

One cost is the human toll on 200 million migrant workers living away from home, without access to education and social services.

Another is the obvious degradation of the environment through air and water pollution. Still another cost is the rush to convert land from agriculture to industrial and residential use.

Until now, the central government's approach has been to variously use prohibitions and exhortations to keep provincial and city governments to national policy.

This approach has not worked.

For instance, the central government does not allow local governments to borrow. So, taking a leaf from Western investment banks, local governments set up special purpose entities to borrow from banks.

As of June 2010, there were over 8,000 such entities with total borrowings of 7.7 trillion yuan.

China is now firmly back on the path of rapid economic growth. It is time for the central government to shift towards assessing the performance of all levels of government by a balanced scorecard.

The balanced scorecard would account for all important societal and economic goals, and not just GDP growth. It is a more effective approach than relying on a panoply of prohibitions that leave loopholes for local governments to exploit.

(The author is a Lim Kim Sanprofessor at the Business School, and professor of economics and information systems at the National University of Singapore. The opinions are personal. Shanghai Daily condensed the article.)