February 27, 2012 / 6:40 AM / in 7 years

China must move towards market economy-World Bank

BEIJING, Feb 27 (Reuters) - China must relax its grip on industry and move towards a free-market economy, the World Bank said on Monday in a report that forecast the country would become the world’s largest economy before 2030.

Judging China to be near an inflection point in its economic growth, the World Bank called on Beijing and its incoming leaders to overhaul the structure of the world’s No. 2 economy to keep income and productivity rising in years ahead.

“As China’s leaders know, the country’s current growth model is unsustainable,” World Bank President Robert Zoellick said in Beijing at the launch of the “China 2030 Report”, the full details of which will not be released until 0800 GMT.

“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.”

An executive summary of the 400-plus page report, made public by Zoellick, had six broad recommendations for Beijing: strengthen a market-based economy, foster innovation, go “green”, provide social security for all, improve the fiscal system and seek mutually beneficial relations with the world.

Among other specific recommendations, it urged Beijing to commercialise banks and allow interest rates to be set by the financial market, develop its private sector, protect farmers’ rights and cut local governments’ dependence on land revenues.

The outcome of these changes would produce a China that is more socially stable and equal in wealth distribution, relies less on exports and investment for economic growth, and more on domestic consumption that can be sustained, the Bank said.

“The reforms that launched China on its current growth trajectory were inspired by Deng Xiaoping who played an important role in building consensus for a fundamental shift in the country’s strategy,” the report said.

“China has reached another turning point in its development path when a second strategic, and no less fundamental, shift is called for.”

President Hu Jintao and Premier Wen Jiabao are scheduled to hand over power to a new leadership in the late autumn, by which time China should be well on course for its slowest full year of growth since they took office a decade ago.

Zoellick acknowledged that the World Bank and Beijing had disagreed over the contents of the report, which is prepared by the Bank and the Development Research Center, a top Chinese think-tank that advises China’s cabinet, the State Council.

But Zoellick said the report “stops short of being overly prescriptive”, as requested by Chinese authorities, and recognises that any recommendation needs further discussion within Beijing before they can be implemented.

“The report is realistic. Reforms are not easy. They often generate pushback,” he said. “We have tried to recognise obstacles to reforms, suggest sequencing and quick wins, steps that can make reforms easier to implement.”

The thrust of the World’s Bank latest report is similar to one released by the International Monetary Fund in November that urged Beijing to free up its financial markets to give investors, commercial banks and the central bank more autonomy.

The IMF’s recommendations drew rebukes from Beijing, which said some of the ideas were not comprehensive and objective enough.

Dong Tao, an economist at Credit Suisse in Hong Kong, said while the World Bank’s recommendations were sensible, it was unlikely that they would all be implemented due to political sensitivities around any form of privatisation.

“As an economist, I’m a big fan of market-based economies. But Beijing needs to balance what is economically good with what is politically and socially practical,” he said. (Reporting by Koh Gui Qing; Editing by Kim Coghill)

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