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HOW GLOBALIZATION IS ACHIEVED
World Bank head Robert Zoellick tells China to Privatize/Deregulate.
8 ARTICLES FOLLOW .....
Articles:
(1) World Bank tells China to abandon "state-led capitalism dominated by
giant state-owned corporations"
(2) World Bank head Robert Zoellick tells China to Privatize/Deregulate
(3) China should Privatize state-owned firms - economist Michael Pettis
(1) World Bank tells China to abandon "state-led capitalism dominated by
giant state-owned corporations"
http://online.wsj.com/article/SB10001424052970204778604577238901231511224.html
February 22, 2012
China Needs Deep Reform, Says Upcoming Report
China could face an economic crisis unless it implements deep reforms, according to a report by the World Bank and a Chinese government think tank, which urges Beijing to operate its vast state-owned enterprises more like commercial firms.
By Bob Davis
BEIJING—China could face an economic crisis unless it implements deep reforms, according to a report by the World Bank and a Chinese government think tank, which urges Beijing to scale back its vast state-owned enterprises and make them operate more like commercial firms.
The recommendation is contained in "China 2030," a report set to be released Monday, according to a half-dozen individuals involved in preparing and reviewing it.
The report, which addresses some of China's most politically sensitive economic issues, is designed to influence the next generation of Chinese leaders who take office starting this year, these people said. It challenges the way China's economic model has developed during the past decade under President Hu Jintao, when the role of the state in the world's second-largest economy has steadily expanded. Reuters A customer pays for her vegetables at a local market in Shanghai February 9, 2012.
"China 2030" cautions that China's growth is in danger of decelerating rapidly and without much warning, as has occurred with many high-flying developing countries once they reach a certain income level, a phenomenon that development economists call the "middle-income trap." A sharp slowdown could deepen problems in the banking sector and elsewhere, the report warns, and could prompt a crisis, according to those involved with the project.
It recommends that state-owned firms should be overseen by asset-management firms, say those involved in the report. It also urges China to overhaul local government finances and promote competition and entrepreneurship.
"China's state-owned sector is at a crossroads," said Fred Hu, chief executive of Primavera Capital Group, a Beijing investment firm. The Chinese government must decide "whether it wants state-led capitalism dominated by giant state-owned corporations or free-market entrepreneurship."
Even ahead of its release, the report has generated fierce resistance from bureaucrats who manage state enterprises, according to several individuals involved in the discussions.
China's political heir apparent, Xi Jinping, now vice president, has given few clues about his economic policies. Analysts expect the high-profile report will help to shape discussions among Mr. Xi and his allies about whether to make changes to a state-led economic model that has alarmed Chinese private entrepreneurs and is becoming a source of growing tension between China and its main trading partners, including the U.S.
The report's authors argue that having the imprimatur of the World Bank and the Development Research Center, or DRC—which reports to China's top executive body, the State Council—will add political heft to the proposals. The World Bank is widely admired in Chinese government circles, particularly for its advice in helping China design early market reforms. ...
(2) World Bank head Robert Zoellick tells China to Privatize/Deregulate
http://www.cnbc.com//id/46537810
China to Be Largest Economy Before 2030: World Bank
Published: Monday, 27 Feb 2012 | 3:43 AM ET
By: Reuters
China must relax its grip on industry and move towards a free-market economy, the World Bank said on Monday in a report that forecast the country would become the world's largest economy before 2030.
AP
Judging China to be near an inflection point in its economic growth, the World Bank called on Beijing and its incoming leaders to overhaul the structure of the world's No. 2 economy to keep income and productivity rising in years ahead.
"As China's leaders know, the country's current growth model is unsustainable," World Bank President Robert Zoellick said in Beijing at the launch of the "China 2030 Report".
"This is not the time just for muddling through. It's time to get ahead of events and to adapt to major changes in the world and national economies."
An executive summary of the 400-plus page report, made public by Zoellick, had six broad recommendations for Beijing: strengthen a market-based economy, foster innovation, go "green", provide social security for all, improve the fiscal system and seek mutually beneficial relations with the world.
Among other specific recommendations, it urged Beijing to commercialize banks and allow interest rates to be set by the financial market, develop its private sector, protect farmers' rights and cut local governments' dependence on land revenues.
The outcome of these changes would produce a China that is more socially stable and equal in wealth distribution, relies less on exports and investment for economic growth, and more on domestic consumption that can be sustained, the Bank said.
"The reforms that launched China on its current growth trajectory were inspired by Deng Xiaoping who played an important role in building consensus for a fundamental shift in the country's strategy," the report said.
"China has reached another turning point in its development path when a second strategic, and no less fundamental, shift is called for."
President Hu Jintao and Premier Wen Jiabao are scheduled to hand over power to a new leadership in the late autumn, by which time China should be well on course for its slowest full year of growth since they took office a decade ago.
Zoellick acknowledged that the World Bank and Beijing had disagreed over the contents of the report, which is prepared by the Bank and the Development Research Center, a top Chinese think-tank that advises China's cabinet, the State Council.
But Zoellick said the report "stops short of being overly prescriptive", as requested by Chinese authorities, and recognizes that any recommendation needs further discussion within Beijing before they can be implemented.
"The report is realistic. Reforms are not easy. They often generate pushback," he said. "We have tried to recognize obstacles to reforms, suggest sequencing and quick wins, steps that can make reforms easier to implement."
The thrust of the World's Bank latest report is similar to one released by the International Monetary Fund in November that urged Beijing to free up its financial markets to give investors, commercial banks and the central bank more autonomy.
The IMF's recommendations drew rebukes from Beijing, which said some of the ideas were not comprehensive and objective enough.
Dong Tao, an economist at Credit Suisse in Hong Kong, said while the World Bank's recommendations were sensible, it was unlikely that they would all be implemented due to political sensitivities around any form of privatization.
"As an economist, I'm a big fan of market-based economies. But Beijing needs to balance what is economically good with what is politically and socially practical," he said.
(3) China should Privatize state-owned firms - economist Michael Pettis
http://www.businessinsider.com/michael-pettis-china-must-privatize-state-monopolies-or-face-a-severe-slowdown-2012-2
MICHAEL PETTIS: No One Is Considering The One Option That Could Save China
Gus Lubin | Feb. 29, 2012, 5:33 AM | 610 | 1
Michael Pettis says the World Bank's report on China out this week doesn't go far enough.
Where the World Bank calls for moderate reforms to increase state revenue like increasing dividends paid by SOEs, Pettis says China needs a radical solution—or it faces severe slowdown.
He writes in a newsletter:
What we really need are much more dramatic transfers, for example wholesale selling of assets, with the money used either to clean up bad loans or delivered directly to households. According to the article, however, “neither the World Bank nor the DRC proposed privatizing the state-owned firms, figuring that was politically unacceptable.”
This is the problem. The best solution for China, economically, seems to be off limits because it will be politically difficult. In that case the second best solution, a gradual build-up of government debt as growth slows for many years, is the most likely outcome.
And how much will growth slow? The World Bank report apparently doesn't say, but the consensus has been slowly moving down towards 5-6% annual growth over the next few years. That's better than the crazy numbers of 8-9% most analysts were predicting even two years ago (and some still are), but it is still too high. GDP growth rates will slow a lot more than that. I still maintain that average growth in this decade will barely break 3%. It will take, however, at least another two or three years before a number this low falls within the consensus range.
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