Reforms or face a crisis, China told

[aimarraul]

Reforms or face a crisis, China told

By Wang Yanlin (Shanghai Daily)09:22, February 28, 2012

China could face an economic crisis unless it pushes its reforms to a much deeper level given its growth model, the World Bank warned yesterday in a report that also urged it to reduce the dominance of state-owned companies and promote free markets to achieve its goal of becoming a high-income society.

China's sizzling economic growth over the past 30 years has come to a point where it is prone to an abrupt slowdown without any warning signs, a case of the "middle-income trap" encountered by many emerging economies, the report said.

A sudden slowdown could worsen inherent problems affecting the banking sector and other industries and even bring about an economic crisis in the world's second-largest economy, the report said.

The report's emphasis on curbing state-owned businesses clashes with China's strategy over the past decade of building government-owned champions in fields from banking to technology and is likely to provoke opposition. "As China's leaders know, the country's current economic growth model is unsustainable," said World Bank President Robert Zoellick at a conference about the report, co-authored with a Chinese Cabinet think tank, the Development Research Center. China has reached a "turning point" and needs to "redefine the role of the state," Zoellick said.

The report highlights the fact that after three decades of reforms which allowed Chinese entrepreneurs to become world leaders in export-driven manufacturing, state companies still controll domestic industries from steel and airlines to oil and telecommunications.

Government companies are supported by low-cost credit from state banks and business groups complain regulators shield them from foreign and private competitors despite China's market-opening pledges.

By adopting a new growth strategy, China will increase its stake to become the world's largest economy before 2030, the report said.

In "China 2030," the Washington-based bank said China should complete its transition to a market economy - through enterprise, land, labor and financial sector reform - strengthen its private sector, open its markets to greater competition and innovation, and ensure equality of opportunity.

Zoellick added: "The case for reform is compelling because China has now reached a turning point in its development path. 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 report highlights six strategic directions for China's future: completing the transition to a market economy; accelerating the pace of open innovation; going "green" to transform environmental stresses into green growth as a driver for development; expanding opportunities and services such as health, education and access to jobs for all; modernizing and strengthening the domestic fiscal system; and seeking mutually beneficial relations with the world.

China released its 12th Five-Year Plan (2011-2015) last year, which stressed that domestic demand should become a new engine of economic growth. "The 12th Five-Year Plan provides an excellent start," the report said.

"Central to all findings is the need for China to modernize its domestic financial base and move to a public financial system - at all levels of government - that's transparent and accountable, overseen by fewer but stronger institutions, to help fund a changing economic, environmental and social agenda," it added.



Reforms or face a crisis, China told - People's Daily Online

 

[FairAndUnbiased]

Green depends on technology. Zimbabwe is the greenest of all. World Bank is trying to fool China into opening markets. Instead we should be closing our markets, increasing subsidies, and increasing intervention. That is the way forward.

 

[pissybits]

Green depends on technology. Zimbabwe is the greenest of all. World Bank is trying to fool China into opening markets. Instead we should be closing our markets, increasing subsidies, and increasing intervention. That is the way forward.

Thank god you're not the one deciding Chinese economic policy. Protectionism doesn't only beget protectionism, but stifles innovation and makes firms complacent and monopolistic. It is sometimes a useful tactic (when one is at a economic/technologic disadvantage) to nurture and grow domestic industry, but China is passing the threshold as we speak.

However China's wage rates and standard of living still lag far behind the developed world, that is why it must be very cautious and timely when it opens its markets to prevent massive inflation. But if China doesn't (gradually) enact market reforms, at best: its firms will never be able to innovate at the same level as the West; at worst: it could lose decades of progress in a Great Leap Backwards.

 

[FairAndUnbiased]

Thank god you're not the one deciding Chinese economic policy. Protectionism doesn't only beget protectionism, but stifles innovation and makes firms complacent and monopolistic. It is sometimes a useful tactic (when one is at a economic/technologic disadvantage) to nurture and grow domestic industry, but China is passing the threshold as we speak.

However China's wage rates and standard of living still lag far behind the developed world, that is why it must be very cautious and timely when it opens its markets to prevent massive inflation. But if China doesn't (gradually) enact market reforms, at best: its firms will never be able to innovate at the same level as the West; at worst: it could lose decades of progress in a Great Leap Backwards.

We are not past that threshhold. Every country enforced protectionism for at least 50 years. That is natural. China is only 30 years in.

There is nothing wrong with a monopoly. Mitsubishi, Hitachi, Canon, Fujitsu and Mitsui are all essentially monopolies. They also have a complete industrial supply line, and in many areas, are at the top of the technology chain. Did lack of competition stifle Hitachi's innovation? Did it make Hitachi complacent? NO. They make everything from supercomputers to pencils. Samsung and Hyundai are trying to replicate the Mitsubishi model and have seen alot of successes.

China on the other hand is dominated by fragmented markets which foreign players can easily profit off of. There is too much competition in China between small players which drive down profits in eternal price wars; the actual prices at the storefront, of course, always rise due to middlemen and taxes.

Look at telecom hardware. It is the most consolidated market in China. There are only 3 players - Huawei, ZTE and Datang. Datang is essentially a government owned research institute, so there can be said to be only 2 commercial players. It is the most wildly successful of all sectors in China. Look at consumer chemicals or cars. Both are highly fragmented markets with dozens of large companies and hundreds of small ones. 80% and 70% respectively are dominated by foreigners. The case shows up over and over again. The more protectionism China has in a sector, the better it is for Chinese.

Open markets are the trick of the already developed to use patents and unfair competition to forever suppress the undeveloped. There have been ZERO countries which developed from less than 1000 dollars GDP to over 20000 dollars GDP from 1930-2012, without either heavy protectionism or outright socialist state ownership. Every "free trade" supporting country was already rich in 1930.

 

[Rusty]

I really hope China does not follow the Japan/Korea model.
In both Japan and Korea, all the politicians pretty much work for the big companies and the people suffer.
In Japan you have to pay a few thousand dollars every 2 years just to get your car "checked up"
This law was introduced to get people to buy new cars, as new cars are exempt for 3 years.
All these laws basically stifle competition and give the large companies monopolies and the people HATE them.

From what I have seen, Taiwan is much better. They have much more small to medium size companies. What that means is that the government can make friendly policies for them, but won't be controlled by them.
And the people have more access to competing products.

 

[1962 spanking]

world bank and imf are mouthpieces of the american regime.

these are designed to collapse the chinese economy.

china should not take advice from western institutions, they have sinister intentions regarding china.

if chinese leaders take advice from these guys, then our leders have sold our country to the evil west.

 

[FairAndUnbiased]

I really hope China does not follow the Japan/Korea model.
In both Japan and Korea, all the politicians pretty much work for the big companies and the people suffer.
In Japan you have to pay a few thousand dollars every 2 years just to get your car "checked up"
This law was introduced to get people to buy new cars, as new cars are exempt for 3 years.
All these laws basically stifle competition and give the large companies monopolies and the people HATE them.

From what I have seen, Taiwan is much better. They have much more small to medium size companies. What that means is that the government can make friendly policies for them, but won't be controlled by them.
And the people have more access to competing products.

Who said to follow their model? China has our own model.

We're talking about preserving the lifeblood of the economy and the nation - finance, rail, power, petrochemicals, and defense - under public ownership. Anyone that argues for these sectors to be privatized is a traitor and an enemy of humanity.

 

[oct605032048]

After ruined and robbed the Latin America, South East Asia, Greece, now the world bank come to China, the only hope of world economy.

"To suicide," according to the report written by the world bank, "you should first ..."

 

[FairAndUnbiased]

there are 2 main threats to China right now.

free market capitalists, and Christians.

 

[Chinese-Dragon]

Who said to follow their model? China has our own model.

Exactly right, we have our own economic model.

We will reform it too our own needs, and in order to strengthen our economic fundamentals.

Ironically, places like the Eurozone are already on the brink of economic collapse, yet they still find so much time to lecture us.

 

[FairAndUnbiased]

Exactly right, we have our own economic model.

We will reform it too our own needs, and in order to strengthen our economic fundamentals.

Ironically, places like the Eurozone are already on the brink of economic collapse, yet they still find so much time to lecture us.

The Eurozone lectures us far less than some other certain power does.

 

[Chinese-Dragon]

The Eurozone lectures us far less than some other certain power does.

And that power shall remain nameless, since everyone knows exactly who it is.

 

[marshall]

Exactly right, we have our own economic model.

We will reform it too our own needs, and in order to strengthen our economic fundamentals.

Ironically, places like the Eurozone are already on the brink of economic collapse, yet they still find so much time to lecture us.

Like I said, it's called "Entitlement Mentality"...with its outward manifestations of Fear and Loathing. As long as China stays the course and doesn't allow weak-kneed weaklings get into positions of influence, China will continue to achieve the supposed impossible.... lol

 

[Rusty]

Who said to follow their model? China has our own model.

We're talking about preserving the lifeblood of the economy and the nation - finance, rail, power, petrochemicals, and defense - under public ownership. Anyone that argues for these sectors to be privatized is a traitor and an enemy of humanity.

a bit over dramatic but point taken

 

[marshall]

China on the other hand is dominated by fragmented markets which foreign players can easily profit off of. There is too much competition in China between small players which drive down profits in eternal price wars; the actual prices at the storefront, of course, always rise due to middlemen and taxes.

Look at telecom hardware. It is the most consolidated market in China. There are only 3 players - Huawei, ZTE and Datang. Datang is essentially a government owned research institute, so there can be said to be only 2 commercial players. It is the most wildly successful of all sectors in China. Look at consumer chemicals or cars. Both are highly fragmented markets with dozens of large companies and hundreds of small ones. 80% and 70% respectively are dominated by foreigners. The case shows up over and over again. The more protectionism China has in a sector, the better it is for Chinese.

Open markets are the trick of the already developed to use patents and unfair competition to forever suppress the undeveloped. There have been ZERO countries which developed from less than 1000 dollars GDP to over 20000 dollars GDP from 1930-2012, without either heavy protectionism or outright socialist state ownership. Every "free trade" supporting country was already rich in 1930.

BINGO! Today, China is at the stage where it is plain stupid to open markets to FAR LARGER, FAR STRONGER, FAR RICHER vertically integrated foreign companies to come into China that can pick off FAR WEAKER, FAR SMALLER, FAR POORER fragmented domestic Chinese companies who have no chance to fight them off. This garbage that it will create leaner meaner companies ONLY WORKS when there is a level playing field. The only reason current policy is debatable is because China needs to maintain employment for all the exporters. However, China's workforce has now stabilized and will begin a long and continuous decline from around 2014-2016 onwards. Ironically, I believe the developed world will become protectionist around that time once the US, EU and Japan finally enter phase II of the 2008 financial collapse. Good news for China, at least for the long run. Until then, China has to stop allowing what is basically foreign monopolistic behavior decimating China's domestic industries.