The Governor of the People's Bank of China (PBC) Yi Gang recently mentioned that China had overtaken Japan to become the world's second largest economy. Some UK researchers believe that at current GDP growth rates, China will overtake the U.S. to be the world's top economy within nine years. The forecasts sparked heated debate worldwide. Some people think the figures are faked and do not take the forecasts seriously; others agree that, sooner or later, China will become the world's biggest economic power.

The accuracy of China's GDP figures need not concern us much. Given the rate of economic growth over the past 30 years and the current exchange rate of yuan, the national figures for GDP are quite believable. Some provinces may exaggerate the figures, but on the other hand in some developed areas the figures may be understated. This makes the final figure released by the National Bureau of Statistics (NBS) more or less accurate.

What concerns me most is that, although China's overall GDP is high, its per-capita GDP lags far behind the west. China's per-capita GDP is around US$3,800, less than one tenth that of Japan or the U.S., and less than one sixth that of France and the UK. Even among developing countries, China occupies only a mid-to-low-ranking position.

Besides, the quality of China's economy bears no comparison to that of the west. Since 2003, China's economic growth has relied on two pillars: exports and real estate. While the former brought China some benefits in terms of modernization, the latter has caused many serious problems. The growth in the real estate market is based on the mismanagement of land resources and property speculation, leading to skyrocketing house prices and a real estate bubble that must eventually be deflated. If China's growth continues to depend on these sectors, the country's economic development will be severely distorted. Fortunately, the government is well aware of the situation, and has introduced a series of measures to mitigate financial risks.

China's economy suffers from a number of unbalances. The first is the imbalance between urban and rural economic development. The reforms of the past three decades achieved great success, but cities and villages are steadily growing apart. The weight of the rural economy in overall economic activity becomes ever smaller.

The second imbalance is between regions. The economies of coastal regions are approaching the level of developed countries, but inland provinces lag behind by at least 10 or 20 years. The more inland a province is, the more backward its economy. The huge regional gap means that even if all provinces have the same GDP growth rate, the quality of their economy differs greatly.

The third imbalance is in income distribution. China is transitioning from a planned economy to market economy. Government intervention can still be seen everywhere in economy. In this situation, the income of an individual is greatly influenced by how close he is to power. The further away a man is from the government power, the less wealth he will get. Rapid economic growth has resulted in a small number of people grabbing the lion's share of the wealth.

If these problems are not solved, the quality of China's economic development will be badly affected and China will face serious difficulties in the future. China's rapid GDP growth will be meaningless if these unbalances remain unsolved.

When we talk about China's economic power, we should be careful not to overestimate our strength. We are still an underdeveloped country and many problems need to be addressed. Only by constantly reviewing our progress and identifying successes and shortcomings, can we move forward. Otherwise, if the country encounters a real financial crisis it may regress to what it was like years ago.

The author is the director of the Finance Institute at the Chinese Academy of Social Sciences (CASS).

(This post was first published in Chinese and translated by Chen Xia.)