China in the year 2030
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A World Bank Report released February 27 has painted a picture of what China might look like in 2030.
The report suggests China is at a turning point. It says China can’t sustain its current high levels of growth and it faces a slowdown unless it makes sweeping reforms.
The major reforms suggested by the report include reforming state enterprises, working harder at innovation, introducing more social programs, going green, improving the fiscal system, and working on achieving good relations with the world.
One reason we should take a close interest in the recommendations of the report is that it was co-authored by a government think-tank, the Development Research Centre (DRC) of the State Council, and it was backed by Vice President Xi Jinping and Vice Premier Li Keqiang, who are expected to succeed President Hu Jintao and Premier Wen Jiabao at the end of this year. This implies there will be significant government support for the World Bank’s recommendations at the highest levels of government, and it gives possible pointers to the direction of state policy after the transition.
From a business point of view, a major area of interest is the suggestion that the government needs to break up state monopolies and the system of state-owned enterprises. Parallel to this, the report recommends removing the current strict controls on many parts of the economy such as the auto, energy, finance, banking and telecommunications sectors. If these were opened up, clearly there would be many opportunities for international companies, which have sometimes struggled to compete, complaining about restrictions on market access and unfair treatment.
In preparing the report, the World Bank posed the question – can China maintain current growth levels. The answer is probably “no” – after all China has achieved an average of 10 percent growth over a 30-year period, which is a truly remarkable accomplishment. However, massive-scale reforms of the economy, and the break-up of state-enterprise monopolies, would certainly give the economy renewed vigor – at least for a few years.
Perhaps a more fundamental question is whether China can avoid what has become known as the “middle income trap” – a situation in which growth flattens out and a country fails to make the transition from a low-to-middle-income society to a high-income one. Thailand has also struggled with this problem. For this reason, it will not only be Thai enterprises watching developments in China with close interest, but also Thai policy-makers.
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