China is one of the motors of the global economy. But its growth model is no longer fit for the future, says the World Bank. What China needs are comprehensive reforms and strengthening of its private sector.
How will the Chinese economy look in 20 years? Which challenges is the giant facing? In a new report, “China 2030," which came out on Monday, the World Bank searches for answers to these questions. The report comes at an important time, according to Robert Zoellick, president of the World Bank, as "the case for reform is compelling because China has now reached a turning point in its development path."
The study was commissioned by the Chinese government and it discusses many controversial economic topics - such as the suggestion by that Chinese state-owned enterprises be run according to the rules of the free market. Many businesspeople complain that Chinese state-owned companies use their monopoly power to push their competition out of the market. Because of this, the report has found, private companies have increasing problems with growth. And it sends out a warning: an interruption in growth could plunge China into a crisis.
Frank Sieren, a journalist and author who lives in China, is not surprised to hear that a crisis might be heading towards the Middle Kingdom, though the World Bank report did show that an upcoming crisis might not be as close as other studies have predicted.
The Western euphoria over China's double-digit growth is being met with skepticism - for example from economists and sinologists. Hu Xingdou, a professor for economics at the Beijing University of Technology, believes the crisis is already knocking at the door. And he expects China to start feeling it in the next three to five years.
Though the country's economic figures appear to be astonishing, and even a cause for jealousy among all industrial nations (the national economy did, after all, grow by 9.2 percent last year), real growth is not as dynamic as statistics show, warns Hu. Hidden problems, he says, are the overcapacities in production industries, redundant construction projects, and political image campains. The latter are often financed with billions from public investments and falsify the real GDP, says Hu.
Clearing out state-owned business
Chinese Vice Premier Li Keqiang commissioned the study "China 2030" during a visit by Robert Zoellick in 2010. Li oversees economic policies and appears to be the most promising candidate to run for office of prime minister in 2013. The main focus of the World Bank study is the state-owned enterprises, which have control over the energy sector, raw materials, telecommunications and the infrastructure. They dominate the public sector, and it is quite usual to see the monopolies administered by family members of high-ranking party officials. Access to good credit conditions from government-owned banks and illegal price fixing raise the value of their stocks considerably.
The World Bank suggests implementing oversight of the state-owned companies by independent, outside managers will help. The managers will ensure the companies are run in accordance with the rules of the market economy and thus become more politically independent. Redundant unitis should be sold off, which will greatly benefit private competition. In addition, Zoellick suggests China reduce restrictions and obstacles for private companies.
Opposition from party members
If reform were to be introduced based on the World Bank's suggestions, many party members could see their comfortable lives at risk. Though the economy is supposedly considered to be run by the common good, in reality, it has benefited members of the party most. Needless to say, the report "China 2030" is a controversial topic in the central government. According to the Wall Street Journal daily, the State-owned Assets Supervision and Administration Commission - the Chinese regulator for state-owned companies - vehemently criticized the authors of the study and have vowed to destroy any possible steps towards reform.
Sieren refers to the reaction as a clear power struggle. "There are a number of different concepts pertaining to how China should continue to develop. Now, they are being discussed in the public realm." Sieren and Hu both believe it is hard to predict the impact the study will have - with diverging ideas in China's one-party state. In the end, it is the central government which has the power to rubber stamp or veto any economic change.
Author: Jun Yan/sb
Editor: Hao Gui/ss