A Call for Beijing to Loosen Its Grip on the Economic Reins

By DAVID BARBOZA
Published: February 27, 2012

SHANGHAI — A new study jointly produced with the World Bank warns that China’s growth engine is likely to be hampered over the next few decades unless this country alters its development model and rethinks the role government plays in managing the economy.

In “China 2030,” a report written with the Development Research Center, a Chinese government research organization, the authors call on Beijing to complete the transition to a market economy, scale back the power of state-owned companies, encourage private enterprise and tackle rising inequality and environmental degradation.

As remarkable as China’s growth has been over the past three decades, the study suggests that the country’s development pattern has been uneven and unsustainable. Beijing, it says, ought to make significant changes.

“The case for reform is compelling because China has now reached a turning point in its development path,” Robert B. Zoellick, president of the World Bank, said during a speech in Beijing on Monday, when the report was released. “Managing the transition from a middle-income to a high-income country will prove challenging; add to this a global environment that will likely remain uncertain and volatile for the foreseeable future, and the need for change assumes even greater importance.”

The release of the report comes at a critical juncture. China is now in the midst of a once-in-a-decade leadership transition, and the report’s proposals could help influence the way the next generation governs in Beijing.

Also, there are growing concerns among analysts that China’s economy is facing strong headwinds this year.

Economic weakness in Europe, Japan and the United States is threatening to dampen China’s export boom. And after years of heavy investment in infrastructure, there are worries here about inflation, local governments’ mounting debts and the possibility that big state-owned banks could be at risk.

In news conferences Monday, Mr. Zoellick said that he was reassured that the government would undertake bold reforms and that he expected China’s economy to remain strong this year, with a soft landing likely.

The 400-page report, however, says little about the immediate challenges facing China’s economy. Instead, it lays out a road map packed with proposals that the authors hope will lead to gradual reforms implemented over years, if not a decade or more.

If all goes well and China undertakes serious changes, the study predicts, the nation could grow at about 8 percent for the next few years and sustain average annual growth of about 6.6 percent for nearly 20 years.

That growth, the study says, should eventually slow to about 5 percent in the years leading up to 2030, more than enough to help China surpass the United States as the world’s biggest economy.

Although external risks from a global economic downturn are a concern, the report says, bigger risks may arise from internal structural challenges, like weak domestic consumption, overinvestment in infrastructure and rising inequality.

Nicholas R. Lardy, an expert on the Chinese economy at the Peterson Institute for International Economics in Washington and author of “Sustaining China’s Economic Growth After the Financial Crisis,” called it a thorough, benchmark report on China and its economy.

But he also said the study failed to offer detailed prescriptions for reforms or explain why so many changes had stalled.

“Many of these issues have been on the agenda for at least a decade,” Mr. Lardy said by telephone. “But the report doesn’t even attempt to explain what obstacles there are to doing these things. Until you shine a light on those things, it will be very difficult to understand why the changes haven’t taken place.”

One of the study’s key proposals deals with efforts to make China’s economy more market-oriented, including scaling back the power of state-owned companies and improving the way the government allocates resources.

“The role of the government and its relationship to markets and the private sector need to change fundamentally,” the report warns.

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