China in 2030
Image Credit: Robert S. Donovan

China in 2030

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This week, the World Bank issued “China in 2030,” a major report that calls for dramatic economic reforms to maintain China’s current rate of growth. In his opening remarks at the launch conference in Beijing on February 27, World Bank chief Robert Zoellick noted that China faces a number of challenges in the coming years, including a rapidly aging population, resource pressures, environmental issues, and rising inequality. 

The report warns that China is at a “turning point in its development path,” and needs a new development strategy. It calls for six changes:

1.      Structural economic reforms

2.      Focus on innovation;

3.      Emphasis on “green” development

4.      Improve social security system;

5.      Strengthen the fiscal system; and

6.      Become a more active global stakeholder. 

One of the major takeaways of the report, and one covered by the international media, has been its recommendation to reduce the influence of state-owned enterprises. The implementation of this idea, of course, will face significant counter pressures from vested interests in China. 

One aspect of the report that I would like to highlight, given my bailiwick, is its recommendations for land reform in its Supporting Report 1, Structural Reforms.

On a general level, the report calls for more efficient land use, a stronger legal framework, and better enforcement mechanisms. One of its bolder suggestions is that China “reconsider the state’s unique monopoly power in the primary land market,” perhaps transitioning into a “market regulator, administrator and service provider, and enforcer of rules.”  It’s a lofty idea, but based on the local government’s heavy dependence on land sales, this is unlikely to happen in the near future.

The report also suggests that rural households be given stronger land rights, in great part to prevent land expropriation and ensuing social unrest.

These are very smart and focused recommendations, especially as they highlight the problem of compulsory land acquisition and subtly hint at what could be accomplished by these reforms: a happier, more secure, and thus less restive rural population.

The report also covers the issue of the intersection of land policy and local government finances, noting the use of land as collateral for loans (dangerous when land prices fall) and suggesting the implementation of an annual property tax. In fact, a property tax is currently in the works in China: in January 2011, Chongqing and Shanghai became the first municipalities to launch a property tax in an initial test run, and more cities are expected to be added to the experiment this year.

The report, at nearly 500 pages, is ambitious, to say the least. The ideas presented aren’t particularly revolutionary, but taken together they form a rather groundbreaking roadmap for China over the next 20 years or so. Of course, as they say, you can lead a horse to water, but you can’t make him drink – what parts of this plan will actually be implemented? Political will and capability are certainly issues here, both in terms of the central government’s willingness to pursue these reforms and their ability to implement these reforms at all levels of government. This is a particularly interesting question in light of the impending leadership transition. 

According to Zoellick’s speech, the idea for the report was conceived a year and a half ago at a meeting between himself and current Vice Premier Li Keqiang, who will likely be taking over as second in command this autumn. The involvement of Li has positive implications for the likelihood of future economic reforms. In the end, whether or not these reforms are adopted will be determined by the crises the Chinese leadership faces, i.e. if/when social unrest bubbles up due to the lack of a social safety net, then social security reforms will take place. The Chinese government has been reactive, not proactive, which is what this World Bank report hopes to change.

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