A new study jointly produced with the World Bank warns that China’s growth engine is likely to sputter during the next few decades unless the country alters its development model and rethinks the role government plays in managing the economy.
In China 2030, a report produced with the Development Research Center of the State Council, a Chinese government research institution, the authors call on China to complete its transition to a market economy, scale back the power of state-owned companies, encourage private enterprise and tackle rising inequality and environmental degradation.
As remarkable as China’s growth has been during the past three decades, the study suggests that its ascent has also been dirty, uneven and increasingly dangerous to the long-term health of the nation and the global economy, and that change is needed soon.
The release of the report comes at a critical juncture. China is in the midst of a leadership transition, and the study’s proposals could help influence the next generation of leaders, including the Chinese vice president, Xi Jinping, who just returned from a visit to the United States.
Also, there are growing concerns among analysts that China’s economy is facing strong headwinds.
Economic weakness in Europe, Japan and the United States are threatening to dampen China’s export boom. And after years of heavy investment in infrastructure, there are worries about mounting local government debts and the possibility that big state-owned banks could be at risk.
The 400-page report says little about the immediate challenges facing China’s economy. Instead, it lays out a road map packed with proposals that the authors hope will lead to gradual changes to be implemented over several years, if not a decade or more.
If all goes well, and China adopts many of the changes, the study predicts the nation could sustain average annual growth of about 6.6% for nearly 20 years, slowing to about 5% in the years leading up to 2030.
That would make China by far the world’s largest economy, overtaking the United States.
The greatest risks facing China’s economy, the authors say, may not be external shocks like global economic weakness, but internal structural challenges, like weak domestic consumption, overinvestment in infrastructure and rising inequality among its people.
One of the study’s boldest proposals deals with scaling back the power of state-owned companies and improving the way the Chinese government allocates resources.
"The role of the government and its relationship to markets and the private sector need to change fundamentally," the report warns.
It says, for instance, that Beijing should make state enterprises more commercially focused, shift greater resources and financing to private companies, and deepen overhauls in the financial sector. These moves, the authors say, would force state banks to compete for customers and operate on a more commercial basis, and push private companies to invest in innovative products.
Although most of the study’s proposals have been around for years, analysts say the emphasis on changes aimed at the state sector seems surprisingly sharp, particularly since the report was jointly published by a state-controlled research institution.
The report stops far short of calling for state-owned companies to be broken up or privatized. But it does suggest that ownership of state companies ought to be diversified, competition intensified, and the nation’s fiscal system -- the way in which the government raises and spends money -- be overhauled.
The study also calls for China to build world-class universities and put greater emphasis on innovation, to "go green," to institute changes in land policy and improve the social safety net, and to integrate itself better into the global economy.
Whether Beijing will adopt or even seriously consider the proposals is unclear. Local governments and state-run enterprises are powerful entities and often resist policies that would weaken them.
And despite calls from within Beijing’s leadership to bolster consumption and encourage private enterprise, change has been slow in recent years.
Part of the reason, experts say, is that China’s export- and investment-led growth has been so successful that few government leaders are willing to make adjustments, for fear they will undermine near-term growth.
But the World Bank and Beijing researchers say that if structural changes are not undertaken now, China could face more serious risks in the next decade or two, challenges that will be amplified as the country tries to cope with an aging society, a weak social safety net and a widening income gap between the rich and the poor.
"By 2030, China has the potential to be a modern, harmonious, and creative high-income society," the report says. "But achieving this objective will not be easy."
Related Stories
