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THE World Bank piled pressure on China to focus on privatisation rather than growth yesterday, claiming state control of key sectors of the economy were holding the country back.
China’s combination of state planning and market mechanisms has transformed it into the world’s second-largest economy and reduced poverty on an unprecedented scale, but the US-based institution is calling for Beijing to follow a neoliberal economic model based on Western states.
World Bank report author Karlis Smits urged the state to start selling off its banks.
China’s ownership of all major financial institutions allowed it to avoid the worst consequences of the 2008 crash that wrecked European and US economies by ordering banks to increase lending and investment, which kept struggling firms going.
But Mr Smits said state ownership was hampering “innovation” and urged widespread “capital and labour reforms” to promote “competition and efficiency.”
The economist was unable to claim that privatisation would reap any immediate economic rewards, admitting that growth would slow and the large year-on-year wage rises Chinese workers have become accustomed to would have to end.
But he promised vaguely that such reforms would pay off in the long run and “stabilise” the labour market.
“The policy focus should be on reforms rather than on meeting specific growth targets,” he said.
China is expected to hit a government growth target of 7.5 per cent for this year.
The international banking body is also calling for accelerated land reforms, arguing that farmers should be able to quit collectives and retain ownership of parts of the land which they could sell or rent.
Land reform advocates in the Communist Party argue that this could strengthen farmers’ bargaining position when they face off against land developers — a major cause of protests in the country.
But there is significant opposition to the idea in the party as well on the grounds that individual ownership might actually weaken collective resistance to developers and could allow the return of a landowning class living off exploited agricultural workers’ labour.
China has asked the World Bank to submit reports with its National Development and Reform Commission on its economy although Beijing has not indicated whether it will follow its advice.
