China urged to continue reforms

WITH China preparing for a leadership change and facing a longer-term contraction of its labour force, reports are suggesting the country needs to continue moving ahead with economic reforms, and in some cases confront entrenched interest groups such as the powerful state-owned enterprises.

WITH China preparing for a leadership change and facing a longer-term contraction of its labour force, reports are suggesting the country needs to continue moving ahead with economic reforms, and in some cases confront entrenched interest groups such as the powerful state-owned enterprises.

China's central bank this week issued a detailed outline of a report calling for the country to ease some restrictions on investing elsewhere over the next three years, a move that would allow Chinese to take greater advantage of Western assets whose values have been depressed in the long economic slowdown. The report also suggested removing some limits on foreign buyers interested in Chinese stocks, bonds and real estate over the next five to 10 years.

On Monday, the World Bank is scheduled to release a five-volume report, prepared with the help of top advisers to the Chinese government, that will provide extensive, market-oriented prescriptions for how China can prevent growth from slowing considerably between now and 2030, as China's labour force begins to shrink and grow old.

Sources said it recommends limiting the influence of the vast state-owned enterprises, expanding research and innovation, protecting the poor and infirm, strengthening the tax system and investing in green energy and energy efficiency.

With the exception of curbing state-owned enterprises, these goals are already in the government's current Five-Year Plan, which runs from 2011 to 2015.

In November, the International Monetary Fund released its own report, calling for China to open its financial sector. That document particularly urged the government to move faster in letting banks make loans to whatever borrower can reliably pay the highest interest, instead of looking to bureaucrats for guidance on lending decisions.

Underlying all of these reports is the nearly unanimous conviction among economists who specialise in China that the country's pace of economic liberalisation has slowed over the past decade under Prime Minister Wen Jiabao. His predecessor, Zhu Rongji, forced the break-up and privatisation of thousands of state-owned enterprises, greatly increasing economic efficiency.

Mr Wen has tried with somewhat less success to confront the remaining state-owned enterprises, which have grown bigger and more politically influential. Such businesses notably in the energy and telecommunications industries have been wary of letting foreign rivals into the country and remain defenders of keeping China's currency weak, to preserve a competitive advantage for exports.

"Reform-minded officials, including Premier Wen, are fighting hard to prevent reform efforts from being paralysed over the next year during the leadership transition," Eswar Prasad, a Cornell University economist who used to head the IMF's China division, wrote in an email. "However, establishment forces that are opposed to rapid financial sector liberalisation and reforms to state enterprises are pushing back strongly."

The central bank, the People's Bank of China, has long favoured relaxing some investment controls.

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