World Bank Releases ‘China 2030’ Report

May 28, 2012 Posted by China Briefing Reading Time: 3 minutes

China 2030: Building a Modern, Harmonious, and Creative High-Income Society

May 28 – A recent report, released by the World Bank and the Development Research Center of the State Council of the People’s Republic of China, forecasts the future economic development of China as well as identifies six reform priorities that the country should implement to avoid a “hard landing.” More importantly, the “China 2030: Building a Modern, Harmonious, and Creative High-Income Society” report outlines specific reform methods needed for China to build up the country in what may be future policy indicators.

Six reform priorities
Implement structural reforms to strengthen the foundations of a market-based economy
According to the report, the role of the government in economic activities needs to be redefined to reduce state intervention in the economy and to strengthen the foundations for a freer market.

Suggested measures include reforming and restructuring state enterprises and banks, developing the private sector, promoting competition, and deepening reforms in the land, labor and financial markets. The goal is to make economic activities determined more by market forces and less by the will of the government.

Accelerate the pace of innovation and create an open innovation system
In order to evolve from a manufacturing and export-led economy, innovation and R&D activities need to be greatly encouraged in China as one of its development strategy. In order to achieve an innovative culture, the government needs to focus on increasing the technical and cognitive skills of university students and building world-class research universities that are closely linked to the industry. This will foster “innovative cities” that can attract not only dynamic firms and institutions, but also high-quality talent.

Seize the opportunity to “go green”
China needs a plan to “go green,” as suggested in the report. The government needs to encourage investment into various low-pollution, energy and resource-efficient industries in order to be environmentally conscious and to gain competitive advantages in new industries.

Expand opportunities and promote social security for all
The increasing social inequality as an after-effect of Deng Xiaoping’s reforms needs to be addressed immediately by the government, according to the report. Before this gap further deepens, the government needs to reverse the trend and reduce the rural-urban differences by delivering quality public services to rural China as well as migrant laborers coming to work in the cities. Of key importance is the restructuring of the social security system to ensure proper coverage for everyone while mobilizing the public to share the responsibility.

Strengthen the fiscal system
All of the abovementioned reform priorities require adequate public financing and the proper allocation of public expenditures. As a result, the government needs to strengthen the country’s fiscal system to face the upcoming challenges of reform. The report identifies three key dimensions:

Mobilizing additional fiscal resources to meet rising budgetary demands;
Reallocating spending towards social and environmental objectives; and
Ensuring that budgetary resources available at different levels of government are commensurate with expenditure responsibilities.

Seek mutually beneficial relations with the world
As a key stakeholder in the global economy now shaping world affairs, China needs to take an active role in global governance. The report suggests that China should keep advocating “open regionalism” in regional trade arrangements while further integrating into the global financial system to steadily and carefully internationalize the RMB to be a global reserve currency.

Reform sequence
Besides laying out the reform priorities, the report also tries to sequence reforms according to time sensitivity and public opinion. According to the report, the highest priority is suggested to be given to reforms that are widely agreed upon and well-supported, such as increasing investment in human capital and mobilizing public participation in the reform and development process. In the meantime, reforms that are designed to tackle short-term risks and will grant quick and visible outcomes should also be granted a higher priority, such as increasing the flexibility of bank deposits and lending rates, stopping forced conversion of rural land for urban use, removing fees for secondary education for rural villages, and adjusting GDP growth expectation to focus more on the quality of GDP.

The “China 2030” report is also aware of the opposition, risks and vulnerabilities of radical reforms, as some reform measures will hurt the interests of state-owned enterprises and beneficiaries of the current system, such as urban “hukou” holders. However, it is firmly believed and reinstated in the report that reform for a market-driven economy is necessary and it is the only way for China’s economy to achieve a “soft landing” while also sustaining growth and maintaining a stable society.

The World Bank’s 468-page report, “China 2030: Building a Modern, Harmonious, and Creative High-Income Society,” can be accessed here.

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