The World Bank and a Chinese think tank have a stern warning for China’s government: transition to a freer market system, or else face an economic crisis.
The “China 2030″ report, released by the World Bank on Monday, recommends China enact reforms promoting a freer economy. Those reforms include a major overhaul turning China’s powerful state-owned companies into commercial enterprises.
“China could postpone reforms and risk the possibility of an economic crisis in the future — or it could implement reforms proactively. Clearly, the latter approach is preferable,” the report said.
The report is compiled by the World Bank and the Development Research Center, a research group that reports directly to China’s State Council. It encourages China to promote innovation, competition and entrepreneurship as means of economic growth, rather than allowing growth to be primarily government engineered.
The world’s second-largest economy has been rising rapidly, averaging around 10% growth a year for the last three decades. Much of that momentum has come as China’s rural population moves into the cities and as the government has funded massive infrastructure projects and retained a powerful influence over the country’s biggest companies.
State-owned companies dominate China’s banking, energy, telecom, health care and technology sectors. Overall, they account for about 40% of the country’s gross domestic product, according to Andrew Szamosszegi and Cole Kyle, who have researched the topic for the U.S.-China Economic and Security Review Commission.
Their latest report to the commission puts it bluntly: The Chinese government has not “expressed an interest in becoming a bastion of free market capitalism.”