The Organisation for Economic Cooperation and Development is urging China to take a range of measures to liberalise its economy, such as freeing up interest rates to encourage banks to lend more to small companies, and privatizing state-owned enterprises. It also said that allowing the currency to appreciate would help the government manage the economy better.
With the help of massive government stimulus action, China is now leading the world economy out of recession, according to a new OECD report. Already the world’s second largest economy, China could well overtake the United States to become the leading producer of manufactured goods in the next five to seven years, it says.
The OECD’s latest Economic Survey of China says it will be important to ensure that government saving, now falling in the wake of the crisis, does not revert to its previous, excessively high levels. Public spending should be stepped up to support much needed social reforms in areas such as education, welfare assistance, pensions and health.
China can afford the extra spending as its public finances remain strong. Gross government debt amounted to only 21% of GDP in 2008. The stimulus measures, which nevertheless dwarfed those of other countries, are expected to increase this debt ratio by only 3% of GDP in 2010. By contrast, gross public debt in OECD countries is projected to almost reach their total GDP this year and even exceed it in 2011.
“The Chinese government’s swift and vigorous action to support its economy has contained the impact of the global recession," says OECD Chief Economist and Deputy Secretary General Pier Carlo Padoan during the launch of the survey in Beijing. "By helping to rebalance China’s economy towards stronger domestic demand, the stimulus is also benefitting the rest of the world. Further stepping up of social spending in China will be important both to foster social cohesion domestically and to promote continued external rebalancing.”â€ª
Even though government reforms have focussed increasingly on the need for social cohesion over recent years, the survey identifies a number of areas where action is needed for living standards in China to continue to improve over the longer term:
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