The Chinese Economy at the Crossroads

The World Bank’s latest report sounds a warning on China’s future economic growth, reiterating critical recommendations concerning the Chinese economy by The Heritage Foundation’s Index of Economic Freedom.

The report makes a strong case that, if China is to keep up growth rates at even half the level it has managed over the past 30 years, it “should complete its transition to a market economy—through enterprise, land, labor, and financial sector reforms.” More clearly, Robert Zoellick, the chief of the World Bank, said during the launch of the report in Beijing yesterday, “As China’s leaders know, the country’s current growth model is unsustainable.”

According to the Index of Economic Freedom, China’s economic freedom has been on a downward trajectory since 2000, when its score peaked at 56.4 points. At best, economic freedom in China continues to rest on fragile foundations. The embrace of market principles that could enhance efficiency and long-term competitiveness has become sporadic and is unevenly distributed throughout the country. It is hardly surprising that private enterprises in China have an average lifespan of only 2.9 years. Markets for capital, labor, goods, and services are all highly regulated. Without economic freedom, there is little opportunity for innovation.

The Chinese economy is at a critical crossroads. This fall, new Communist Party leadership will be selected, and a new government will take over early next year. Derek Scissors, Heritage research fellow in Asia economic policy, sums it up this way:

It’s at least possible that, given time in office, [incoming Communist Party Secretary Xi Jinping] will come to accept that China is off course. Not today, not tomorrow, but (perhaps) soon. This is what the reform camp is aiming at. The rest of the world should remain skeptical, but it should be cheering them on.

Source material can be found at this site.

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