Bloomberg News

China Must Change to Spread Benefits of Growth, Zoellick Says

February 28, 2012

World Bank President Robert Zoellick comments on China’s growth, changes needed in the structure of the nation’s economy and the fiscal system to reduce inequality. He spoke to reporters in Beijing today.

On China’s growth model:

“China has been very successful over the past 30 years with one structural model for development. That model has focused on export-led and heavily investment-led growth. The 12th five-year plan recognizes that needs to change, to focus more on domestic demand and consumption.

‘‘Competition brings more efficiency, adds to productivity and productivity can sponsor higher wages.

‘‘The export sector which has been highly competitive already has some of these benefits, but some of the service sector, which needs to adapt to benefit from reforms needs the type of adjustments that would break up monopolistic or oligopolistic positions.

‘‘Will some of the vested interests that benefit from the current structure resist? I suspect they will. They do in the U.S., in Europe and Japan. But the Chinese leadership’s interests are that of all the Chinese people not just specific groups.

Former President Jiang Zemin and former Premier Zhu Rongji ‘‘used the WTO accession process to push internal reforms in China in the course of the late 90s. WTO membership then connected China into the rules-based trading system. That provided the foundation for the export led and investment-led growth that has been so successful for the past 10 years.

‘‘If you look at the conditions in the international economy, it would be unrealistic to expect that China would be able to rely on exports to the same degree going forward.’’

On the need for state-owned enterprises to pay dividends:

‘‘Many experts have the view that state-owned enterprises have benefited from very inexpensive financing, preferred positions in the market and they’ve gained very large retained earnings that have led to China’s savings but haven’t necessarily benefited all the Chinese people.

‘‘To reduce China’s global savings rate and also to benefit the Chinese people, if a lot of those dividends are sent back to provide social benefits for China’s people you’ll have structural change and help support some of the social security system.’’

On Chinese policy makers’ receptiveness to change:

‘‘In my conversations with the Chinese leaders, they not only say they want to move to reform, they describe the challenges in a way that suggests they know it’s needed.

‘‘Having said that, I don’t expect any big bang reform. The history of China’s development process starting with Deng Xiaoping is often to start in local areas, with pilots and to test and then to widen the process.

‘‘They are very aware of the facts - the environment costs, the urbanization process, the aging population, some of the issues of social disparity. I think they believe they need a new approach to be able to address those issues.

‘‘From some informal conversations with some of our Chinese colleagues, in the process of their discussing the draft of this report with other ministries, I’ve gotten the sense that there is a hope that with the next generation that things will move forward.’’

On the need to improve China’s fiscal system:

‘‘Part of China’s high savings rates are the retained earnings of those state-owned enterprises.’’ Some of the money to fund an expanded pension system ‘‘could come from dividends from state-owned enterprises.

‘‘There have been a lot of disputes in China over land and this is often because local governments have expenditure responsibilities but they don’t have revenue sources, they don’t get revenue from the center. So if you move towards a revenue system that matches resources with expenditure responsibilities, you avoid some of the tensions that are built into the system and you get benefit for the average person in China.’’

To contact the reporter on this story: Nerys Avery in Beijing at navery2@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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