China has reached a “turning point” in its economic development, with the pace of growth likely to nearly halve in the next two decades, World Bank and Chinese government researchers said yesterday.
The Asian giant must implement deep reforms to avoid a sudden slowdown in growth, such as scaling back its vast and powerful state-owned enterprises and breaking up monopolies in strategic sectors, the analysts said in a report.
After averaging 10 percent annual growth for the past 30 years, China’s export and investment-driven model was no longer sustainable, World Bank President Robert Zoellick said at the launch of the China: 2030 study.
“The case for reform is compelling because China has now reached a turning point in its development path,” Zoellick told a conference in Beijing.
“The country’s current growth model is unsustainable. This is not the time just for muddling through — it’s time to get ahead of events and to adapt to major changes in the world and national economies,” he said.
The report was backed by Chinese Vice President Xi Jinping (習近平) and Vice Premier Li Keqiang (李克強), who are expected to succeed Chinese President Hu Jintao (胡錦濤) and Premier Wen Jiabao (溫家寶) during a transition of power that begins at the end of this year.
Despite this high-level support, the report prepared by the World Bank and the Development Research Center under the State Council, China’s cabinet, is likely to face resistance from people with “vested interests” in the current model, Zoellick said.
“Reforms are not easy — they often generate pushback,” he said.
Development Research Center Vice Minister Liu Shijin (劉世錦) said the reforms were necessary as the world’s second-largest economy slows to 5 to 6 percent annual growth in the next 20 years from the current 9 percent. Chinese leaders frequently talk about the need to reform the country’s economic model, partly by reducing its heavy reliance on exports and increasing domestic consumption.
However, significant reforms have been slow as stability-obsessed leaders try to maintain rapid economic growth seen as essential to create enough jobs for the country’s 1.3 billion people and keep a lid on unrest.
The report makes a number of recommendations, including curbing the influence of state-owned enterprises, breaking up monopolies and making it easier for small and medium-sized enterprises to access funding.
Beijing prohibits or restricts foreign investment in certain sectors such as auto, energy, finance, banking and telecommunications, drawing criticism from overseas competitors over the lack of market access and unfair treatment.
Domestically, privately owned firms often complain about the lack of competition and the fact they cannot access financing from commercial banks, which prefer to lend money to other major state-owned enterprises.
The report also urges Beijing to commercialize the country’s banking system and gradually remove interest rate controls as it seeks to “complete its transition to a market economy.”