China warned of economic crisis risk

CHINA could face an economic crisis in the next 20 years if Beijing does not quickly overhaul its development model, World Bank and Chinese government researchers warned yesterday.

The world's second-largest economy was at a "turning point" and the need for deep reforms was urgent, the analysts said in a report forecasting China's economic growth would nearly halve in the next two decades.

China must make a number of changes, such as scaling back its vast and powerful state-owned enterprises, breaking up monopolies in strategic sectors and making it easier for small companies to access financing, they said.

"China could postpone reforms and risk the possibility of an economic crisis in the future or it could implement reforms proactively," according to the "China 2030" report prepared by the World Bank and the Development Research Centre under the State Council, China's Cabinet.

"Proactive policy change has been key to China's economic success and the calls for reforms within the country have never been louder."

After averaging 10 per cent annual growth for the past 30 years, China's export and investment-driven economic model was no longer sustainable, World Bank president Robert Zoellick said at the launch of the study.

"The case for reform is compelling because China has now reached a turning point in its development path," Zoellick said in Beijing.

"The country's current growth model is unsustainable. This is not the time just for muddling through - it's time to get ahead of events and to adapt to major changes in the world and national economies."

The report was backed by vice president Xi Jinping and vice premier Li Keqiang, who are expected to succeed President Hu Jintao and Premier Wen Jiabao during a major transition of power that begins at the end of this year.

Despite this high-level support, the report is likely to face resistance from people with "vested interests" in the current model, Zoellick said.

"Reforms are not easy - they often generate pushback," he said.

Liu Shijin, vice minister of the Development Research Centre, said the reforms were necessary as the Asian powerhouse slows to five to six percent annual growth in the next 20 years from the current nine per cent.

Chinese leaders frequently talk about the need to reform the country's economic model, partly by reducing its heavy reliance on exports and increasing domestic consumption.

But significant reforms have been slow as stability-obsessed leaders try to maintain rapid economic growth seen as essential to create enough jobs for the country's 1.3 billion people and keep a lid on unrest.

Beijing prohibits or restricts foreign investment in certain sectors such as auto, energy, finance, banking and telecommunications, drawing criticism from overseas competitors over the lack of market access and unfair treatment. AFP