Shortage in supplies of oil and labor last year was one of the major factors that drove home the urgent need to shift the country's growth mode from basic GDP increase to more sustainable development.

China's economic growth has traditionally relied heavily on raw materials and energy input, which results in high waste. People, however, have not felt the pinch particularly.

Last year's oil supply shortfalls sobered us up, making it clear that energy supply has limits.

In the past, almost everyone believed that China's cheap labor supply was endless. As a matter of fact, low labor costs constituted a very important driving force behind the country's fast growth, and helped make Chinese-manufactured goods very competitive on the international market.

However, employers, especially those in economically prosperous areas such as Guangdong Province, found last year that it was hard to hire the farmers-turned-workers who make up the backbone of the workforce in many sectors. Many of them chose to stay home and farm because of the extremely low wages paid to them as workers.

In view of all this, the guarantee of the continuation of the momentum that has powered Chinese economic growth over the last two decades requires new driving forces.

Strong consumption demand is expected to be the most important of these new forces.

In order to bring about strong demand, realignment of the relationship between interest groups becomes a must.

People have long realized the importance of shifting the economic growth mode. The Ninth Five-Year Plan (1996-2000), for example, stressed the importance of switching from an extensive growth mode based on excessive consumption of energy to a more efficient one.

But an effective and workable mechanism is absent.

Wu Jinglian, a renowned economist, once cited an example to show this problem. In Beijing, the concentration of top-notch researchers and scientists is one of the highest among the world, and therefore it should be a base of high-tech development.

But to everyone's disappointment, high-tech failed to bring the city much revenue and boost its GDP. So the city had to go in for the automobile industry, creating a "Hyundai wonder," in which it only took 8 months for the cars to roll off the line after the Sino-Korean joint project was established.

Everyone sees clearly that the sustainable development of the Chinese economy requires more technical innovation, raising the efficiency of raw material and energy consumption, reducing environmental pollution, creating domestic demand and rearranging interest groups' relationships.

But when it comes down to a specific locality, things begin to change.

How should a local government spend a certain sum of money?

Should the money go to an industrial project or to an environment program? The former would help earn the local leaders excellent records with regard governance. The latter would help improve the local environment. In many cases, local leaders choose the former over the latter.

It should be noted that local governments play a very important role in the country's economic and political life.

In the current political and social set-up, the government controls a large part of the resources, and possesses the power to distribute the resources.

Under such circumstances, the local governments' behavior is of vital importance to the switching of the growth mode.

If the local leaders are held responsible for the well-being of the masses under their governance, their behavior would be more swayed by the opinions of the people. In this scenario, the masses would benefit more from local economic development better environment, better education and better social security.

Unfortunately, local leaders are appointed by higher authorities and the "feats of governance" are therefore an extremely important indicator in gauging their performance.

GDP growth of a locality overrode everything else when gauging the "feats" of local leaders just a couple of yeas ago.

In pursuit of "feats of governance," local officials left no stones unturned in launching various industrial projects. Everything else environmental protection, economic efficiency and social issues had to wait.

Although a new concept of governance appraisal, which stresses judging government officials in a more comprehensive way, has been put forward over the last couple of years and the GDP mania has therefore weakened somewhat, economic growth still remains a very substantial indicator in assessing local work.

It is clear that changes merely in indicators are far from enough. If an appraisal system is centered on indicators, no matter how reasonable the indicators are, problems are bound to crop up.

For example, because new ideas concerning government officials' performance contain such factors as environmental protection, some local governments borrowed heavily from banks, sometimes beyond their means, in order to build large areas of lawns, which consume large amounts of water.

Such lawns or gardens actually pose a heavy burden on the local environment.

To make matters worse, these "indicators" still sway the behavior of local governments.

Under such circumstances, any attempt to switch the growth mode would go awry.

Introduction of a mechanism checking and balancing government officials' behavior is therefore necessary.

Expansion of the people's congress' role in this regard might provide a solution.

The reform of the taxation system is equally important with regard to helping shift the nation's mode of growth.

Local revenue always tops the local government's agenda.

The problem is that tax, the main source of revenue, is chiefly imposed on production and circulation. Little tax is levied on consumption and people's properties and assets.

This drives local leaders to launch new productive projects at the expense of individual income increases.

If individuals' assets are levied more heavily, might it help influence the local leaders' ways of doing things?

The author is a professor from the Sociology Department of Tsinghua University.

(China Daily November 22, 2005)