Speeding Up Reforms Will Foster More Inclusive Growth in China, Says OECD

by CFO Innovation Asia Staff, 25 March 2013

China has made tremendous progress toward achieving inclusive growth, but major reforms are needed to ensure a fourth decade of rapidly converging living standards and a greener economy, according to the Organisation for Economic Co-operation and Development's latest Economic Survey of China.
These reforms include deregulating interest rates, opening markets dominated by state-owned enterprises to competition, increasing the supply of building land, treating migrants to cities in an even-handed fashion, taxing carbon and deregulating energy prices. Full implementation of these reforms will foster socially inclusive urbanisation, a key to a continued rise in domestic demand.
The new survey, presented in Beijing by OECD Secretary-General Angel Gurría, forecasts that GDP will grow by 8.5% this year and 8.9% in 2014.
"The gradual pick-up in activity provides a strong background for the ambitious reforms China needs to put in place to continue on the road to prosperity,” Gurría says. “We are encouraged by the new leadership’s policy vision and welcome its emphasis on initiatives to make growth not only strong but also inclusive and sustainable over the years ahead.”
Among OECD's key policy recommendations is to maintain prudent macroeconomic management. The OECD explains that monetary policy can remain relatively accommodative in the near term, but it should be forward-looking and guard against inflation risks. China should deal with the off-budget liabilities of local government financing platforms and substantially raise the annual quotas for new building land, to reduce pressure on property prices.
The OECD also recommends that China continue moving toward market-determined interest rates and align the regulation of bond markets for long maturities with market practices for shorter ones. Quotas for inward investment in equities and long-dated bonds should progressively increase, while allowing for greater use of offshore renminbi deposits in mainland China and greater exchange rate flexibility.
Another recommendation is strengthening policies to boost competition and innovation. OECD says that rules for opening new sectors to private investment - including foreign investment - should be clarified and the time needed to register a new business reduced.
"Improving the effectiveness of R&D spending and tightening enforcement of intellectual property rights will boost innovation," notes the OECD.