Economic Outlook: China urged to de-emphasize state-owned businesses as it matures

By ANTHONY HALL, United Press International  |  Feb. 27, 2012 at 10:23 AM
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The U.S. economy may need some fine-tuning, but China's is still in its formative years -- at least that's the wish of many Westerners.

A report by the World Bank, produced in conjunction with the Chinese Development Research Center of the State Council, sets guidelines for how China will move from a nation with an emerging middle class to one with a solid grip on whatever comes next.

The report focuses on the transition to 2030 and what is needed to sustain economic growth, environmental sustainability and social cohesion. That's a tall order what with growth pains and all that.

The report recommends some familiar suggestions, such as increasing domestic demand, especially considering how much of China's economy is dependent on exports and, in turn, the frailty of economies in the United States, Europe and Japan.

"The case for reform is compelling, because China has now reached a turning point in its development path. Managing the transition from a middle-income to a high-income country will prove challenging," The New York Times quoted Robert Zoellick, president of the World Bank, as saying in a speech in Beijing.

The report says China should decrease its emphasis on state-owned businesses and rely on the innovation that comes with private competition. Nothing beats a rivalry between two companies for keeping prices low and sparking development of, say, the Android smart phone operating system, which, in turn, is responsible for scaring Apple into providing new features on the iPhone.

That may be the very reason the United States has become China's research and development division. From light bulbs to fast trains to solar panels, China is famous for pouncing on Western innovation -- also for piracy of said innovations. For this reason, the report focuses on privatization, but also recommends investments in Chinese universities.

With the right formula, China's economy could grow 6 percent per year and then tail off to 5 percent growth in the years leading up to 2030, the report says.

China's economy averaged 9.91 percent growth from 1979 to 2010. It's on track to become the largest economy in the world. The implications seem clear: Economically speaking, China cannot remain an adolescent forever.

In international markets Monday, the Nikkei 225 index in Japan shed 0.14 percent and the Shanghai composite index in China rose 0.3 percent. The Hang Seng index in Hong Kong lost 0.88 percent and the Sensex in India lost 2.67 percent.

The S&P/ASX 200 in Australia dropped 0.91 percent.

In midday trading in Europe, the FTSE 100 index in Britain dropped 0.95 percent while the DAX 30 in Germany gave up 1.19 percent. The CAC 40 in France shed 1.22 percent and the Stoxx Europe 600 lost 0.89 percent.

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