The World Bank published a nearly 500 page report Monday, co-authored with a government think-tank, which prescribes a roadmap of reform for the Chinese economy as it enters the next phase of its expansion. From the foreword of the report, penned by World Bank chief Robert Zoellick and Development Research Centre of the State Council president Li Wei:

The idea behind this study was developed in 2010, at the celebrations for the 30th anniversary of the China–World Bank partnership. To commemorate that milestone, President Zoellick proposed to Chinese leaders to work jointly on identifying and analyzing China’s medium-term development challenges looking forward to 2030. Together, China and the World Bank would conduct research drawing on lessons from international experience as well as China’s own successful development record, and prepare a strategic framework for reforms that could assist China’s policy making as well as guide future China–World Bank relations. China’s state leaders welcomed and supported the proposal.

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The report is based on the strong conviction that China has the potential to become a modern, harmonious, and creative highincome society by 2030.

In order to reach that objective, however, China must change its policy and institutional framework. China’s next phase of development will need to build on its considerable strengths—high savings, plentiful and increasingly skilled labor, and the potential for further urbanization—and capitalize on external opportunities that include continued globalization, the rapid growth of other emerging economies, and promising new technologies. At the same time, China will need to address a number of significant challenges and risks, such as an aging society, rising inequality, a large and growing environmental deficit, and stubborn external imbalances.

The report touches on a number of avenues for reform, including a reduction in the influence of state-owned enterprises, an emphasis on green development, and the improvement of China’s social security and other safety nets, all with an aim to helping China manage its economic transition and not fall into the “middle-income” trap. Zoellick held a news conference in Beijing on Tuesday to discuss the report, where one lone protester disrupted the event with “Occupy”-style slogans before security personnel dragged him away. Still, Chinese media welcomed the findings – One opinion piece in The China Daily applauded the potential dialogue the author hoped the report would facilitate, while another suggested that China is well placed to implement the suggested reforms.

High-ranking Chinese officials, including Vice Premier Li Keqiang and Finance Minister Xie Xuren, also chimed in to stress the importance of accelerating economic restructuring and promoting innovation. With the Chinese People’s Political Consultative Conference (CPPCC) and National People’s Congress (NPC) just days away from opening their annual sessions, however, the Economist warned that World Bank officials and other observers should take the rhetoric of reform with a grain of salt:

The bank, however, should be prepared for disappointment. In the buildup to the party congress, a bit of reformist posturing is only to be expected. Different factions in the party want to air their agendas in order to influence the policy choices of the new leaders. A hint of this emerged in a commentary in the People’s Daily (in Chinese) on February 23rd. It said some officials wanted to keep things as they were in order to avoid criticism, but that this would eventually result in an even greater crisis. “No matter how thorough plans are, or how intelligently crafted they are, reforms will always be attacked,” it said, giving warning that mere “tinkering” with reform had been the downfall of great nations and parties.

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China’s new leaders will likely take at least a few months to consolidate their power and settle in before they feel confident enough to tackle economic reforms that affect powerful vested interests, such as the bureaucracy that controls state enterprises or the ministry of commerce. (Nicholas Lardy of the Peterson Institute for International Economics in Washington, DC, describes the influence of these groups in a detailed chapter in his new book, “Sustaining China’s Economic Growth After the Global Financial Crisis”). Even then, it is very unlikely that those who take over leadership of the party in a few months’ time will be any stronger than their predecessors when it comes to taking on the conservatives.

Arvind Subramanian, an Indian economist who made waves with his 2011 book about China’s path to becoming the world’s top economic power, gave his thoughts on the report during a Q&A interview with The Wall Street Journal:

What did you think of “China 2030”?

I was pleasantly surprised. I give them credit for fundamentally saying the way forward is to move qualitatively away from the status quo. The report said you had to reform. But what the report didn’t say is ‘How much of reform requires political change?’

The $1 million question is how much change can you bring on without bringing down the political scaffolding? How much more controlled reform can you do? The more reform you do, the more you bring down the scaffolding.

Spotlight: 2012 Growth Target

Premier Wen Jiabao kicked off the NPC’s annual session today by giving his annual work report and setting a GDP growth expectation of 7.5% for 2012, the first time China has set its sights below the 8% mark in the past eight years. The Wall Street Journal reports that the target signals that China intends to focus more on the quality rather than the speed of its economic expansion, and indicates a willingness by Beijing to accept slower growth in exchange for a more balanced development profile:

In his government work report to the NPC, Mr. Wen said the government aims to contain consumer-price inflation at around 4% this year. Last year, the consumer-price index rose 5.4%, above the official target of within 4%.

He also reiterated Beijing’s official line of maintaining a prudent monetary policy and a proactive fiscal policy, and set a 14% growth target this year for M2, China’s broadest measure of money supply.

“We aim to promote steady and robust economic development; keep prices stable; and guard against financial risks by keeping the total money and credit supply at an appropriate level and taking a cautious yet flexible approach,” Mr. Wen said.

For updates, insights and analysis as the NPC opens in Beijing, see The Wall Street Journal’s live blog of the proceedings.

Manufacturing Data Beasts Estimates

Elsewhere, an expansion in export orders contributed to better-than-expected February manufacturing data, as China’s official purchasing managers’ index (PMI) registered its highest level since September. The overall figure, which saw its third straight monthly gain, indicated that the resiliency of Asian economies may be helping China’s factories to manage the export strain caused by Europe’s debt crisis. While the People’s Daily hailed the news as a sign of economic stability, however, Financial Times’ Josh Noble cautioned against an overly optimistic reaction to the data:

Although the government’s purchasing managers’ index registered its highest reading in five months and marked a continued period of expansion in manufacturing, the jump is a little too small to seriously cheer the bulls.

Following the January halt in production caused by China’s new year celebrations, the PMI was expected to rise in February. Indeed it did, hitting 51, up from 50.5 in the previous month, thanks to new export orders and increased hiring. (In PMIs, anything above 50 indicates expansion; below 50 indicates contraction.)

But it isn’t all rosy. The increase of just 0.5 points is, by historical standards, pretty low for a new year rebound.

While the manufacturing sector continued its expansion, China’s non-manufacturing PMI contracted for the first time in three months in February, reflecting a decline in consumer and retail activity after the Lunar New Year holiday. It’s worth noting, however, that HSBC’s unofficial reading of China’s services PMI indicated an expansion and painted a different picture than the official data.

Lending Rebound?

With February in the books, focus in the coming week will shift to policy discussions at the NPC and the release of official economic data for February. The China Securities Journal reported on Wednesday that China’s banks likely issued less than RMB 700 billion in new loans for the month, an unofficial figure which would fall short of market expectations despite an anticipated uptick in lending following the recent reduction in banks’ reserve requirement ratio.  But the president of one of China’s “Big Four” banks, ICBC’s Yang Kaisheng, sought to dispel the belief that banks had extended fewer new loans so far in 2012:

ICBC lent 165.5 billion yuan in loans in January and February, about 15 billion yuan more than the same period last year, bank president Yang Kaisheng said on the sidelines of the Chinese People’s Political Consultative Conference.

“The idea that we’ve lent less in the first two months of this year is incorrect,” Yang said. “Altogether, the Big Four banks sawloans grow about 20 billion yuan in January and February.”

Other News:

- A China Daily op-ed published today outlines the economic challenges facing emerging China.

- As part of the working report distributed ahead of Premier Wen Jiabao’s opening remarks at the NPC today, the government will seek to develop its non-public sector by breaking up monopolies and encouraging private investment in sectors such as railways, public utilities, finance, energy, telecommunications, education, and medical care. China’s second-richest man, billionaire and NPC member Zong Qinghou, advocated such a strategy in a weekend interview.

- With property prices and housing development likely to top the agenda during the NPC and CPPCC sessions this week, one Chinese researcher writes in a Xinhua News piece that urban housing policies should not be relaxed.

- A Chinese economist at UBS expects China’s consumer price index (CPI) to rise 3.6% in February, a figure which Xinhua news says would represent a “remarkable pullback” from January’s 4.5% inrease.

- As China continues to promote an eventual internationalization of the RMB, The Global Times reported Sunday that companies based on Guangdong province may soon be able to apply for yuan-denominated loans in Hong Kong.

- Chinese banks have started to give discounted loan rates to first-time home buyers, according to state media, a potential sign of looser policy for the property sector despite nearly two years of tightening measures.

- Hong Kong’s first major IPO of 2012 fell on its first day of trading, after three large cornerstone investors helped to offset a lack of retail demand as investors remain cautious about new issues in the region.

- Copper prices neared their 2012 highs as signs of a soft landing in China helped to bolster global appetite for the commodity.

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Post tags: China 2030, China PMI, Chinese People's Political Consultative Conference, debt crisis, Development Research Centre of the State Council, economic growth, economic reform, Li Keqiang, National People's Congress, robert zoellick, state-owned enterprises, Wen Jiabao, World Bank
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The report warns that China’s growth is in danger of decelerating rapidly and without much warning. That is what has occurred with other highflying developing countries, such as Brazil and Mexico, once they reached a certain income level, a phenomenon that economists call the “middle-income trap.” A sharp slowdown could deepen problems in the Chinese banking sector and elsewhere, the report warns, and could prompt a crisis, according to those involved with the project.

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The World Bank and DRC argue that asset-management firms should oversee the state-owned companies, say those involved in the report. The asset managers would try to ensure that the firms are run along commercial lines, not for political purposes. They would sell off businesses that are judged extraneous, making it easier for privately owned firms to compete in areas that are spun off.

“China needs to restrict the roles of the state-owned enterprises, break up monopolies, diversify ownership and lower entry barriers to private firms,” said Mr. Zoellick in a talk to economists in Chicago last month.

World Bank President Robert Zoellick will visit China next week to unveil the report, according to The China Daily. For more on the challanges faced by China’s economy, see also CDT Money, a weekly rundown of business and economic news from China.

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Post tags: economic growth, economic reform, hard landing, state-owned enterprises, World Bank
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“The nationwide survey, which will provide basic data for China’s Gini coefficient calculation, will cover about 140,000 urban and rural households, and the gathering and use of data will conform to international standards,” Xie Hongguang, deputy chief of the National Bureau of Statistics (NBS), said.

The integrated urban-rural income data is scheduled to be published in 2013 to pave the way for the publication of a national Gini coefficient that can measure income inequality, Xie said ….

Yi Xianrong, a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, suggested that the government introduce regulations to ensure the transparency of income information.

“The public have a right to know the Gini coefficient,” Yi said.

Last year’s NBS figures put China’s rural Gini coefficient at 0.39, just short of the 0.4 mark widely held to show potentially destabilising inequality. But the article also cites the World Bank’s 2009 estimate of 0.47 for the country as a whole. See explanations of the Gini coefficient from the World Bank and Wikipedia, and the latter’s global comparison, from Sweden and Norway in the 0.20s to Namibia at over 0.7.

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Post tags: economic inequality, income inequality, inequality, National Bureau of Statistics, urban rural divide, World Bank
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Estimates showed that China’s current relative status to the US was similar to Japan’s in 1951, and South Korea’s in 1977, who were in their high-speed development period, World Bank Chief Economist and Senior VP Justin Yifu Lin said.

“By the year of 2030, measured by purchasing power parity, China’s economic size may be twice as large as the US…and China’s per capita income would be half of that of the US by then,” Chinese state run Xinhua news agency quoted Lin as saying.

Lin did admit there were various  structural adjustments to be made  in the Chinese economy.

… China should consider ways to rebalance its economy towards domestic demand, given the inevitable slowdown in the exports and the need to reduce trade surplus.

China also needs to reduce its income disparities and rebalance short-term growth and long-term environmental sustainability, he said.

In other words, China’s economic potential is not inevitable. Various events could derail economic growth. From Bloomberg News:

Global risks include surging food, commodity and fuel prices that pose a threat to social stability, “as demonstrated by events that unfolded in Tunisia and Egypt,” Lin said.

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Post tags: economic growth, World Bank
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While US emissions fell substantially in 2009, to levels not seen since 1995-96, China surged ahead with an increase of more than 13% on the previous year – the equivalent of adding the yearly emissions of Germany, Greece and Peru combined ….

The map reveals how heavily future emissions trends depend on China, which overtook the US as the world’s biggest emitter in 2006-07. China’s emissions have so far risen just as fast as its runaway economic growth, but the government is hoping to “decouple” the two in the next decade, reducing the country’s emissions per unit of GDP by 40 to 45% by 2020, compared with 2005 levels. Doing so will be essential if global greenhouse gas emissions are to fall in line with scientific warnings.

But green campaigners want to stop western companies using the focus on China and their own falling output as an excuse for backpedalling on climate change. They have urged governments in developed countries to strengthen their emissions targets to prevent businesses from taking what would amount to an “emissions holiday”.

Meanwhile, the Institute of Public and Environmental Affairs has published a new Air Quality Transparency Index together with the Renmin School of Law. Beijing-based doctoral student Angel Hsu writes:

Building off of similar indices aimed to gauge the availability and access of environmental information, such as the Pollution Information Transparency Index (PITI), the AQTI’s aim is to compare the transparency of air quality information in 20 Chinese cities and 10 international cities, mainly from North America and Europe.

The AQTI is significant start in providing greater and much needed context for air quality data in China, which have often been criticized for being confusing and misleading at times. Moreover, international agencies such as the World Bank has reported harrowing statistics suggesting China is home to some of the post polluted cities in the world. While reports like these do point to the serious environmental and health hazards caused by air pollution in many Chinese cities, it is important to note that international scrutiny of China’s air quality data would not even be possible of China didn’t make the data publicly accessible in the first place.

Of the Chinese cities included, only Beijing manages to scrape past New Delhi, ranked 10th and last among the international cities. Mexico City, in 9th place, lies some way ahead. Nevertheless, Beijing might take some comfort in a record streak of Blue Sky Days, surpassing even the two long periods in summer 2008 when authorities implemented exceptional anti-pollution measures to coincide with the Olympics.

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Post tags: air quality, Beijing, Beijing Olympics, blue sky, carbon emissions, environmental data, Germany, Greece, mexico, New Delhi, Peru, World Bank
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This is not an unambiguous story. This destruction is not being pursued out of wickedness: it is happening as a side-effect of a benevolent impulse. The Chinese people are determined to rise from poverty to prosperity. Forty years ago, China was starving. Today, it is in surplus. Some Chinese argue: if environmental damage is the price we pay for whiplash development, why not? You Europeans and Americans destroyed your environments, felled your forests, trashed your habitats all through your Industrial Revolution – and when you were rich enough, you cleaned it up. Yes there is a cost, but it is less than the cost of staying poor forever. How dare you lecture us, when most of our emissions are from factories you have outsourced to make goods and process waste for you, and when you refuse to even make tiny cuts in your emissions are home?

There’s some justice in these responses. Your contribution to global warming (and mine) vastly exceeds the average Chinese person’s. Every successful environmental treaty in history began with the biggest polluters cutting back first. Yet we are refusing to do it, and far from urging China to go green, our governments are doing the opposite. It wasn’t mentioned in the industrial quantities of journalistic hot air that accompanied Hu Jintao’s trip to Washington D.C., but the Obama administration is currently suing the Chinese government at the World Trade Organization to stop them from subsidizing wind farms, saying it represents ‘unfair competition.’ A seventy-a-day smoker riddled with lung cancer isn’t really in a position to lecture a younger man to stop smoking, especially if he’s trying to steal his nicotine patches.

But if this debate dissolves into a game of mutual finger-pointing – you’re the worst! No, you are! – then we will be trapped in a spiral of mutual environmental destruction. The argument that China will simply clean up the damage when they’re rich doesn’t work, alas, for two reasons. Firstly, 700,000 people are dying every year in China as a result of the extreme pollution, according to the World Bank. They can’t be compensated at some later date with a wind farm. Secondly, and even more crucially, the West “cleaned up” largely by exporting its pollution to poor countries like China. As Watts puts it: “This model relied on those at cleanup stage being able to sweep the accumulated dirt of development under a new and bigger rug. When this process reached China, it had already been expanding for two centuries. Now “the waste [is] getting too big and the rug too small.” Where is China going to export it to? For how long?

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Post tags: Barack Obama, global warming, Hu Jintao, industrial revolution, jonathan watts, thomas friedman, World Bank, world trade organization
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The bank raised its 2010 growth outlook from 9.5 percent to 10 percent and its growth outlook for next year from 8.5 percent to 8.7 percent. Growth eased in the third quarter to 9.6 percent from 10.3 percent the previous quarter as Beijing tried to steer it to a more manageable level.

“Growth is likely to moderate somewhat more in 2011 and the medium term to a still robust pace,” the bank said.

Despite a largely upbeat outlook, the bank said Beijing needs to do more to boost domestic demand and cut reliance on exports and investment. Communist leaders have announced that goal repeatedly but private sector analysts say they have done little to shift emphasis to consumer spending and service industries instead of manufacturing and construction.

“The need to rebalance to more domestic demand-led, service sector-oriented growth seems stronger now than five years ago, in part because the international environment is less favorable,” the bank said. “Rebalancing will not happen by itself – it will require significant policy adjustment.”

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Post tags: economic growth, World Bank
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China has earned a new degree of recognition for its growing influence on the global economy, after members of the World Bank decided Sunday to increase Beijing’s voting power behind only the United States and Japan in the international lending body.

The boost underscored a broader decision at the bank’s meeting to raise the share of votes held by developing countries to just over 47 percent, as part of ongoing reforms to give poorer countries a greater say in setting World Bank lending policy.

“It will enhance the role that developing countries can play in World Bank affairs and also help the bank play a greater role in helping developing countries improve economic development and reduce poverty,” Chinese Finance Minister Xie Xuren said in a statement.

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It’s easy to forget that big international bodies like the IMF and the World Bank were created by just a few nations, led by the United States. These economic organizations have global reach, but that globe used to be dominated by the American superpower, and their policies were suffused with U.S. values. When Beijing was a small-stakes player its leaders didn’t always like the setup, but they lived with it, even facing down fierce grassroots opposition to join the World Trade Organization.

But now China has more worldwide clout, and public opinion at home has taken on a combative (and sometimes downright jingoistic) tone. So with one eye on China’s national interests and the other on domestic critics accusing the regime of “coddling” the West, Beijing has begun to push harder to reshape international systems to make them more China-friendly (and, in the process, to raise the regime’s chances of survival).

Ironically, U.S. officials often complain that Beijing isn’t more involved in running the world—declining to help security efforts in Afghanistan, for instance. But in most such cases, China is being asked to take part in a system it didn’t set up—one it views as inherently biased in favor of the West. The Chinese are far more eager to participate in groups they’ve had a hand in building, like the Shanghai Cooperation Organization, a sort of Central Asian NATO in which China (as might be guessed from the name) plays the leading role. While that alliance started out as something of a joke in 1996, it’s grown into a pillar of regional security.

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The World Bank raised its forecast for China’s 2009 economic growth to 7.2 percent in its China Quarterly Update published on June 18, up from a 6.5 percent forecast in March.

The Washington-based international financial institution based its revision on China’s record amount of loans and surging investment, which resulted from the massive 4 trillion yuan stimulus package announced last November.

China, the world’s fastest expanding economy and its third largest, has witnessed strong retail sales and a recovery in real estate and imports in the past quarter.

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Post tags: economy growth, World Bank
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