Bank chairman: Reform can fix structural problems

15:42, July 14, 2011      

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Guo Shuqing, chairman of China Construction Bank, delivers a speech at the 16th Congress of the International Economic Association on July 6.

Hidden problems in the rapidly-growing Chinese economy have drawn global attention, testing the wisdom of the country's economic and political leaders.

Among the elites was Guo Shuqing, chairman of China Construction Bank, who addressed the sub-forum at the 16th Congress of the International Economic Association on July 6.

The imbalance and unsustainable issues are still a very serious challenge, which will lead to a "vicious circle," warned Guo in his English speech.

Therefore, China should continue reforms — especially the land system reform, social security reform, education and medical reform, fiscal and taxation, foreign trade and foreign exchange reforms — said Guo, a former central bank vice governor, State Administration of Foreign Exchange director and Huijin chairman, who has served as China Construction Bank chairman since 2005.

Guo raised five major imbalances to be redressed: rural and urban development; the service and manufacturing industries; high-tech industries and low value-added sectors; environmental and development, and the balance of payments situation.

Many people nowadays worry about China's hard landing, while some about soft landing, said Guo. "I just worry about landing. Why? Because China’s economy is very easy to overshoot," therefore bringing problems.

China's 12th Five-Year Plan set the annual economic growth rate target at 7 percent, but Guo said this year's growth will be at least 9 percent. "It is very unlikely to be below 9 percent."

"People believed that the control may be too tight in the monetary policy area," Guo said. But in terms of China's monetary supply, "it's not the situation."

China's fixed-asset investment rose more than 20 percent year on year in the first half of 2011. "There are a lot of short-term problems," Guo added. "But actually some long-term and or mid-term issues are more important, especially for China."

Examples are the change of the growth model and development pattern, according to Guo. "And economic and social reforms — especially social reforms — are very important for the economy, for further growth and further development. The balance and unsustainable issues are still very serious challenges to China's economy."

In terms of the gap between rural and urban developments, Guo said: "People say cities look like Europe in China, while the villages are like Africa. That means the difference between the cities and villages is great."

Guo said the urban-rural gap is due to different land systems, population and residential policies. In China, arable land is usually contracted to farm households for a term of 30 years, according to law.

"It does not encourage very much the long-term investment in rural areas," Guo said. "So we can see that in other countries in Europe, America and Japan, they underwent industrialization at the same time as urbanization.

"And you can see the production factors moved in both directions: from cities to rural areas, from rural areas to cities. But in China, we just see one direction: mainly laborers from the countryside [migrate] to the cities. There is not much capital, technology or other things — information or talented people — [going] to the rural areas, I think that's the major difference," said Guo.

The service industry has been less developed than the manufacturing industry, Guo suggested. "Urbanization has lagged behind industrialization for a long time, which is fundamentally agreed upon," and it also brought citizenship problems in the urban and rural areas.

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