Report calls for sweeping reforms in China

HONG KONG -- China needs sweeping economic and social reforms to sustain rapid growth to 2030, according to a report from the World Bank and Chinese government researchers.

China should reduce the role its government plays, further develop its private sector and deepen reforms in land, labor and financial markets, according to the 448-page report issued Monday.

By tackling these reforms, China is likely to remain one of the world's fastest-growing economies even as the country's expansion slows from an average of 8.6% a year over the next five years to 5% by 2030, according to the report.

While China is on track to overtake the U.S. as the world's largest economy by 2030, it has reached a "turning point" in its development after more than 30 years of economic growth averaging 10% a year, the analysis says.

"As China's leaders know, the country's current economic growth model is unsustainable," said World Bank President Robert Zoellick said at a Beijing press conference Monday.

The report recommends revamping state enterprises by hiring external auditors, appointing senior management and allowing professional asset managers to trade and gradually diversify the government's stake.

At the same time, the government should increase the credit available to small and midsize enterprises and consider breaking up state monopolies or oligopolies in industries such as chemicals and telecommunications to make it easier for private companies to compete, the report says.

That competition will boost productivity and drive innovation, according to the report.

Separately, China needs to focus on sustainable development and improving its social services and benefits to address stressed natural resources, rising income equality and an aging workforce, it says.

The report's endorsement by the central government's think tank, the Development Research Center, and the Chinese Ministry of Finance's support of the research, could increase the chances of the reforms being implemented.

A transition of power that begins in China this year — with Chinese Vice President Xi Jinping set to succeed President Hu Jintao— also provides a "glimmer of hope" for change, says Derek Scissors, a research fellow at the Heritage Foundation, a conservative think tank in Washington, D.C.

But the new government may find it difficult to pursue immediate reforms on thorny issues such as state-owned enterprises, which typically get preferential access to bank loans and business opportunities in China.

"Realistically, 2014 is the first year we can judge whether the new government is interested in genuine reform," Scissors says.