Zheng Lifei Beijing
China was likely to see little slowdown in growth this year even as its government needed to overhaul its economy to manage expansion over the next two decades, World Bank president Robert Zoellick said yesterday in Beijing.
The economy would probably have a “soft landing” in the near term, Zoellick said, introducing “China 2030”, a report by the lender and Chinese state researchers. The nation needs to redefine the government’s role, alter the structure of state enterprises and gradually allow market-set interest rates, according to the executive summary.
Policymakers inside and outside China are grappling with how the engine of growth for the world economy will weather Europe’s debt crisis in the short term and avoid a sharper slowdown over the longer term. Some recommendations yesterday echoed previous reports; the World Bank in June 2010 urged more use of interest rates to manage the economy.
“As China’s leaders know, the country’s current economic growth model is not sustainable,” Zoellick said yesterday. He told reporters later that “in the near term, I personally believe that China is likely to have a soft landing”.
The World Bank said in November last year that China was heading for a slowdown of growth to in excess of 8 percent in 2012 and had fiscal scope to cushion its economy from an escalation in Europe’s debt crisis. Gross domestic product expanded 9.2 percent last year.
China needed to rely more on markets and the private sector, alter its “hukou” or residency-permit system and provide basic social protection to all its citizens, Zoellick said yesterday. The report was co-authored by the bank and the Development Research Center of China’s State Council.
The MSCI Asia Pacific index of stocks fell 0.8 percent by 5.33pm in Tokyo. The Shanghai composite index rose 0.3 percent to a three-month high.
Zoellick said yesterday’s report was meant to give direction and recognised that ideas needed further debate before details could be implemented. The full 468-page report elaborated on the recommendations and forecasts. The government might need to shift its emphasis toward private-sector development and “could securitise its implicit equity in state enterprises as soon as possible”, the report said.
The report was conceived to help China avoid the middle-income trap that often stalled the productivity and income growth of countries when their per capita incomes reached $3 000 (R23 600) to $6 000, Zoellick said in September.
Also at yesterday’s event, Chinese Finance Minister Xie Xuren said the government would continue to deepen changes and accelerate economic restructuring. It would also focus more on employment.
The government needs to commercialise the banking system and deepen capital markets, according to a summary of the report released by the World Bank. China’s growing weight in world trade, the size of its economy and its role as the largest creditor will make the internationalisation of the yuan “inevitable”, according to a press release issued separately.
“Support for reforms will be stronger if the plans are based on full participation throughout all levels of society,” the press release said. “The biggest risk is that vested interests will try to thwart reforms.”
The report urges China to “strengthen the fiscal system” and ensure that “local governments have adequate financing to meet heavy and rising expenditure responsibilities”, according to the summary. Local governments had 10.7 trillion yuan (R12.8 trillion) in debt at the end of 2010, 79 percent due to banks, according to the country’s first audit released in June. – Bloomberg