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asia.nikkei.com

China faces 1% growth in 2030s if

reform lags: World Bank - Nikkei
Asian Review
ISSAKU HARADA, Nikkei staff writer
5-6 minutes

BEIJING -- China's economic growth rate could drop to 1.7%

by the 2030s without reforms to address the country's
misallocation of resources, warns a report released Tuesday
by the World Bank and a government think tank.

"After nearly four decades of rapid growth, China has entered

a new normal of slower growth," said the opening sentence of
the "Innovative China" report.

Noting that China's old drivers of growth are "running out of

steam," the report said that the country can no longer rely on a
growing labor force, the expansion of manufacturing, migration
from rural areas to cities, expanding exports, and opening to
foreign investments.

Instead, China needs to focus on "continuous productivity

growth," it said. The consequences of failing to adapt to the
new realities will be significant, the authors suggested.

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Gross domestic product growth, which was 6.6% in 2018,

would come to 4% in the 2020s and 1.7% in the 2030s if only
limited reforms were undertaken, the report calculated.

With moderate reforms, meanwhile, average annual growth

would reach 5.1% in the 2020s, then 2.9% in the 2030s.

Under bolder reforms, growth averages 5.1% in the 2020s and

4.1% in the 2030s. But even this most optimistic scenario has
been downgraded from the future painted in the 2012 report,
which expected 5.9% growth for the 2021-2025 period and 5%
for 2026 to 2030.

An employee works at a television factory in Shenzhen, China.

© Reuters
The new report notes that China's total factor productivity --
which gauges how efficiently capital and labor are used
together -- is about half the level of developed countries.
Growth in this metric has slumped since the global economic

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crisis of a decade ago, according to the report.

To increase productivity, the report recommends "reforms of

financial, labor, and land markets."

To improve labor mobility, the report advocates overhauling

the household registration system that prevents migrants to
cities from accessing public services. It also calls for "ensuring
fair competition" between state-owned and private-sector
enterprises.

China should promote not only innovation, but also the

adoption of advanced technology in the economy, the report
says.

Tuesday's report is the fruit of a two-year joint study by the

World Bank and the Development Research Center of the
State Council. It follows up on the "China 2030" report
released in 2012.

The old report, released toward the end of Hu Jintao's time as

Chinese president, embraced strong market-based reforms.
The current one, published on the watch of current President
Xi Jinping, backtracks on reforming state-owned enterprises.

Arguing that public resources are solely for "public goods and
services" like defense and social spending, the 2012 report
recommended shrinking the state sector through such steps
as gradually cutting the government's stakes. Tuesday's report
declares that state companies "are at the core of the
coexistence between the state and the market" and will "retain

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an important role in China's economy."

One author of the new report admitted to Nikkei that it was

difficult to mention scaling down state-owned enterprises
when Xi repeatedly declares his goals of making state capital
stronger, better and bigger.

This sentiment was echoed Tuesday when the "Innovative

China" report was announced.

"How do we make 'Innovative China' into a reality?" Vice

Finance Minister Zou Jiayi asked. "First, it is important to
continue to resolutely demonstrate the superiority of socialism
with Chinese characteristics."

In the nearer term, JPMorgan expects China's growth to slow

to 5.8% next year and decline further to about 4.5% before
2030.

"We think over the next 10 years China's growth will slow to
about 4.5%," said Joyce Chang, chair of global research at
JPMorgan, at a Monday event in New York, adding that this
forecast is an optimistic one.

"When China slows down, the rest of the world slows down as
well, particularly in the emerging markets," Chang continued.
Each percentage point drop in Chinese growth will take off
more than 1 point of the growth of commodity-heavy Latin
America, 0.6 in Europe and 0.2 in the U.S., she estimated.

On a possible Japanification scenario in China, Chang

expressed worries about China's level of debt and the difficulty

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that creates for implementing more stimulus. Moreover, "we're

not seeing signs that [the fiscal stimulus has] really worked,"
she said.

Nikkei staff writer Alex Fang in New York contributed to this

report.

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