Sat, Feb 25, 2012 - Page 3 News List

World Bank warns of crisis in China

SCREECHING TO A HALT:Without reforms to state-owned firms and local government, China’s growth could soon decelerate rapidly, with disastrous consequences for Taiwan

By William Lowther  /  Staff Reporter in Washington

A new World Bank report with possible implications for the Taiwanese economy warns that China could soon face an economic crisis unless it implements deep reforms.

The report, which is to be released next week, says China’s economic growth is in danger of decelerating rapidly and without much warning.

Asked to comment on the forecast, which was given an exclusive preview on the front page of the Wall Street Journal on Thursday, one leading Washington expert said that Taipei could have cause for “deep concern.”

US-Taiwan Business Council president Rupert Hammond-Chambers said that about 40 percent of Taiwan’s exports go to China and that number continues to climb.

He said: “Any negative change in [China’s] economic growth will reduce demand for Taiwan’s products, which will have an adverse effect on the Taiwan economy.”

“The impact will depend on how deep and profound China’s economic crisis is,” Hammond-Chambers said.

According to the Wall Street Journal, the report, titled China 2030, was prepared by the World Bank and the Development Research Center (DRC), a Beijing-based think tank.

The Journal said the World Bank recommended that China scale back its “vast state-owned enterprises, making them operate more like commercial firms.”

A number of economists directly involved in preparing and reviewing the report have told the Journal that it challenges the way China’s economic model has developed under Chinese President Hu Jintao (胡錦濤).

The report also urges the next generation of Chinese leaders, who are due to take office this year, to overhaul local government finances and promote competition and entrepreneurship.

Derek Scissors, a research fellow at the Heritage Foundation and an academic who closely follows the Chinese and Taiwanese economies, said that the report might prompt Taipei to take bolder action.

He suggested that Taiwan should consider a free-trade agreement with India and an earlier approach to the Trans-Pacific Partnership (TPP).

“The faster Taiwan finds such alternatives, the better,” he said.

“Not only is diversification always wise, the ECFA [Economic Cooperation Framework Agreement] bought the mainland [sic] growth stock at its peak. The years of rapid Chinese growth that Taiwan could benefit most from are past,” Scissors added.

“[The] ECFA was still a good idea, but it is clearly insufficient. Taiwan very much needs to find other close and important partners, not just to balance Chinese political influence, but because the economic gains themselves may not be as extensive as many thought three years ago,” he said.

Commenting on the overall study, Scissors said: “There has always been a reform camp in China, it just happened to lose every -major political battle in the past nine years.

“Now, the reform camp is trying again. They’re not going to succeed this year or next, but they at least have a chance — for the first time in a decade,” he said.

Hammond-Chambers said that one of the more likely scenarios involving Taiwan could relate to a domestic crisis in China that resulted in the Chinese communist government creating a foreign policy crisis — to divert attention from it — that would rally the Chinese people around a nationalist cause.

“Look at Argentina and the Falklands as a present and past case,” he said.

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