World Bank says China’s economic growth unsustainable, Suggests reforms to avoid social unrest

China must urgently implement sweeping economic and political reforms, including the reduction of the dominance of state companies and promotion of free market if it is to maintain growth of even half the level it managed over the past three decades, the World Bank said in a report released Monday.

"As China's leaders know, the country's current economic growth model is unsustainable," said World Bank president Robert Zoellick at a conference on Monday about the report, co-authored with a Chinese cabinet think tank, the Development Research Centre.

After growing an average annual 10 percent in the past 30 years China's economy may slow to grow just 5 percent a year by 2026-2030, from 8.5 percent in 2011-2015, the Bank said. The challenge for Beijing is to keep the slowdown smooth.

China has reached a "turning point" and needs to "redefine the role of the state", said Zoellick.

The 468-page report called China 2030: Building a modern, harmonious and creative high-income society, recommends an array of politically thorny changes and warns China that postponing urgently needed reforms “risks the possibility of an economic crisis in the future”, and also raises the likelihood of serious social unrest.

"As a high-income society, China's aspiration is to enjoy a per capita income on par with advanced economies," the report says. "Realising China's vision for 2030 will demand a new development strategy."

Recommendations for Beijing include: strengthening a market-based economy, allow interest rates to be set by the financial market, commercialisation of banks, develop its private sector, protect farmers' rights, cut local governments' dependence on land revenues, foster innovation, provide social security for all, improve the fiscal system and seek mutually beneficial relations with the world.

These changes, the report said, would produce a China that is more socially stable and equal in wealth distribution, and relies less on exports and investment for economic growth, and more on domestic consumption that can be sustained.

Probably the most contentious suggestion in the report was the call for Beijing to redefine the role of government by reducing the power of state-owned enterprises, breaking up monopolies, pushing privatisation of state enterprises and making governance more responsive and inclusive.

“The timing of this report is important because you’ll have a leadership transition in China [later this year],” Mr Zoellick said.

The World Bank hopes its prescriptions will be used as a blueprint for reform but many analysts are sceptical that the next crop of Chinese leaders will have the power or inclination to implement many of the suggestions.

Eswar Prasad, a Brookings Institution China scholar told the Wall Street Journal that the report was constrained politically and some of its recommendations may be less bold than they appear because of the state's desire to continue to keep control.

"The recommendations are limited to market-oriented reforms within a framework that remains dominated by state control," he said.

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