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Last Updated: Monday, 22 May 2006, 23:01 GMT 00:01 UK
What might hold back China?

By Quentin Sommerville
BBC News, Shanghai

China changes so quickly, that sometimes a bit of perspective is required to see the challenges lying ahead.

Highway
The road to growth may no longer be 'hard' infrastructure

Thirty-five storeys above Shanghai, a new landmark is being created.

The heavy lifting goes on day and night.

China's buildings, like its economy, climbs ever skyward.

From on top of the Shanghai's new World Financial Centre, it is easy to get some perspective.

When completed it will be one of the tallest buildings in the world, and at 492 metres high, easily the tallest building in China.

The tower is rising on what was once muddy farm land.

Now it is the financial heart of the what is fast becoming the world's most powerful economy.

The evidence of China's love affair with concrete is laid out for all to see.

New roads, highways, bridges and tunnels have appeared across Shanghai.

This kind of spending has given China a huge competitive advantage over other developing countries.

'Hard' infrastructure

Fifteen years ago, there were almost no highways in China.

Stephen Green, senior economist with Standard Chartered Bank
Economist Green says China's spending priorities are changing

In fifteen years time there will be 70,000km of them, giving China the kind of infrastructure that will rival developed countries.

All the new roads and cities make it easy to do business here.

But that advantage could easily turn into a problem.

By spending so much on what is called "hard" infrastructure, China has neglected to invest elsewhere.

'Soft' infrastructure

Things are changing, though, as China's spending priorities are shifting.

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Indian businessman

"That heavy investment in roads and factories was necessary, it wasn't a bad thing, we now have the infrastructure there for growth," says Stephen Green, senior economist with Standard Chartered Bank.

"But now the government has realised that they need to spend a little bit more money and a little bit more time sorting out the 'soft' infrastructure. Paying for healthcare, education and pensions."

And there is another China, where people have not become rich.

The wealth gap between China's cities and the 800 million people in the countryside has never been greater.

This rising inequality is leading to social unrest.

Environmental disaster

The government is increasing spending in an attempt to improve harmony between the two.

Construction workers in Guizhou
Not everyone in China have benefited from the economic growth

But the increase in rural spending in this year's budget was still lower than the increase in China's military spending.

And there are more challenges besides, according to the businesses working here.

The power company ABB recently opened a robotics factory in Shanghai.

China's burgeoning energy use is a concern for its chief executive, Fred Kindle.

"China currently is using much more energy for gross domestic product (GDP) growth than comparable countries. Compared with Japan, China uses six times more energy for every [percentage] point of GDP.

"China needs to find ways to continue to grow while saving more energy."

And most of that energy comes from polluting coal.

The environment is a disaster; the air and water in most of the country is not fit to breathe or drink.

It is yet another problem the government is struggling to bring under control.

This year's economic plan makes an ambitious commitment to cut energy use by a fifth over the next five years, but environmentalists remain sceptical.

Individually, China's investment, environmental and social challenges may not curb its extraordinary growth.

But if all three problems are left unchecked, then China could be overwhelmed.



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