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English>>China Business

Transforming economic struture risky but vital task for nation’s future

By Stephen S. Roach (Global Times)

13:08, November 16, 2012

(Liu Rui/Global Times)

China's stunning achievement of bringing over 660 million people out of poverty since 1981 is unprecedented. While income disparities are rising for China as a whole, this extraordinary record on poverty reduction underscores the increasingly inclusive dimension of the Chinese development miracle.

Still, more needs to be done in boosting overall per capita incomes as well in reducing poverty for the remaining 20-30 percent of the population that still qualifies as remaining below the poverty line. This can only be achieved by altering the economic structure of the country as a whole.

Three major reform initiatives are needed to transform the pro-consumption strategy of the 12th Five-Year Plan into reality. First, China must provide a comprehensive set of regulations aimed at opening up its embryonic services sector.

Services provide the infrastructure for consumer demand, especially in neglected distribution industries such as wholesale and retail trade, domestic transportation, and supply-chain logistics.

Services require 35 percent more jobs per unit of Chinese output than manufacturing and construction, allowing China to absorb surplus rural labor while growing more slowly. They also consume fewer natural resources and energy, offering a more environmentally sustainable development trajectory.

Moreover, China must address the financial insecurity of its people that has arisen from a porous social safety net. While considerable progress has been made in setting up national healthcare and retirement systems, these programs suffer from a serious lack of funding, which caps their benefits. As a result, insecure families increase their saving - a major headwind to consumer-led growth.

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