The World Bank said there is a compelling case for reforms in the Chinese economy that has reached a turning point in its development path and urged the country to complete its transition to a market economy.
Further, the lender said the acceptance of China's renminbi, also known as yuan, as the global reserve currency will depend on the pace of financial sector reforms and the opening of its external capital accounts.
In a report titled "China 2030: Building a Modern, Harmonious, and Creative High-Income Society" released Monday, the World Bank recommended steps to deal with the risks facing China over the next 20 years, including the risk of a hard landing in the short-term.
According to the report, China's growth will decline gradually in the years leading to 2030 as the country reaches the limits of growth brought about by current technologies in its current economic structure.
World Bank President Robert Zoellick expects a "soft landing" in China in the near-term. The country's current growth model is unsustainable, he said.
The economy recognized the challenges of moving away from export-led growth as well as over reliance on investment toward strong domestic demand and consumption, Zoellick said.
Still China faces challenges from a population that will grow old before it grows wealthy and pressure on global supplies of energy and food, the World Bank chief said. Moreover, more retirees in the labor force and environmental dangers pose challenges, he added.
Researchers at the World Bank are of the view that China needs to modernize its domestic financial base and move to a public financial system. It should commercialize the banking system and remove interest rate controls gradually, they said.
Also, the government should redefine the roles of state-owned enterprises and breaking up monopolies in certain industries.
In order to deal with external shocks in the decades ahead, China should reform fiscal system that includes improving the efficiency of raising revenue and strengthening the efficiency of public spending.
"China's growing weight in world trade, the size of its economy and its role as the world's largest creditor will make the internationalization of China's renminbi inevitable," the World Bank said.
by RTT Staff Writer
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