Chinese Economy Needs “Renewed Reform Momentum”, Says OECD

March 22, 2013Chinaby EW News Desk Team

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China’s growth is likely to accelerate this year and next even as it navigates a fragile global recovery, but a “renewed reform momentum” is necessary if the world’s second largest economy is to sustain vigorous and socially inclusive growth over the longer run, said the Organisation for Economic Cooperation and Development.

China’s economy will rebound to 8.5 percent growth this year and 8.9 percent next year, said the OECD on Friday as it offered one of its most upbeat assessments of China's prospects in its latest Economic Survey of China.

Noting that China has made remarkable strides in cutting its reliance on external demand and that domestic rebalancing is underway, the OECD forecast that China would average 8 percent growth in per capita terms during the current decade.

Growth in China slowed to a 13-year low of 7.8 percent in 2012, with weak demand in the European Union and the United States – its two biggest export markets – the main drag on growth.

“There is significant scope for further catch-up in China; China has a strong record with respect to several of the key factors for sustaining growth and is well positioned to emulate the record of earlier stellar Asian performers,” the OECD said in its survey of the world’s second-biggest economy. "It is well placed to enjoy a fourth decade of rapid catch-up."

The Paris-based organisation added that China is on course to overtake the United States as the world’s largest economy by 2016, after allowing for price differences.

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Chief author of the report, Richard Herd, also on Friday played down the risks from inflation and local-government debt, saying that in the overall context of a central government with big cash reserves, large fiscal flexibility and the potential for Beijing to take direct ownership of troubled local government assets, China's financial system was strong enough to easily absorb potential trouble.

But the report warned that further economic reform was necessary. "To sustain vigorous and socially inclusive growth over the longer run, renewed reform momentum is required," the OECD said, pointing to financial market liberalisation and increased competition in the services sector as key areas of focus.

In particular, the OECD drew attention to China’s urbanisation push, saying the government needed to focus on building larger, more productive cities.

Although Chinese cities have expanded quickly, the country’s urbanisation rate of 52.6 percent is still below that of countries at similar levels of development. Transportation problems have also become severe. Average daily commuting times in Beijing – which boasts one of the country’s larger subway networks – are 79 minutes, roughly double the OECD average.

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