In a report “The China 2030” released earlier this week, the World Bank warned that China’s economic growth may slow down to just 5% by 2026, after an average annual growth of 10% over the past 30 years. The report co-authored with a Chinese cabinet think tank (State Council’s Development Research Centre) outlined some critical reforms needed in China’s financial markets for maintaining its growth rate and reaching its goal of becoming a high income society over the next 20 years.,
Of the reforms suggested, most important is full transition to a market based economy. Others are accelerating the pace of innovation; using green growth as a driver for development; expanding health, education and employment opportunities for all and modernizing its domestic fiscal system.
China’s capital-intensive and export-oriented economy is already facing strong headwinds due to economic conditions in its major export markets. While the country has renewed its efforts to promote domestic consumption and has made some progress in rebalancing the economy away from exports, the consumption is still about 35% of GDP, well below that in some other developing countries such as India (more than 55%).
China has also been slowly loosening controls on capital flows as a move towards making renminbi, a global currency.
What is most interesting about the report is that it seems to have official or semi-official endorsement (having DRC as the co-author). The question then is even if China’s leaders know that they have to implement necessary reforms, can they do it anytime soon?
The country prepares for big leadership transition later this year, and the new leaders will not be very eager to introduce important reforms that will no doubt be resisted by powerful vested interests, such as the bureaucracy that controls giant state enterprises.
Do you think that China will open up its financial markets and become a market based economy?
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