As the world's largest surplus saver, with total savings likely to amount to 50 percent of the GDP in 2012, China has the wherewithal to provide a significant injection of public funds into its retirement and healthcare systems.
China deserves a new round of SOE reforms. The first wave of SOE reforms in the late 1990s sparked improved efficiency in the Chinese economy. However, there has been discernible backtracking on this front, especially in the aftermath of the crisis of 2008-09, when State-directed banks funneled a massive fiscal stimulus into investments by SOEs.
Premier Wen Jiabao has warned of the risks of this reversal, especially those posed by an increasingly concentrated banking system.
New enterprise reforms are the only antidote. They must address dividend policy, which currently skews returns toward capital rather than labor. They must push for the public listing of remaining shares in State-owned enterprises. They must also stress market-based innovation strategies that would level the playing field between State-supported and private sectors.
All in all, after two decades of powerful reforms, momentum has slowed in the past 10 years. The legacy of former leader Deng Xiaoping faded in the rush to hyper-growth. Yet without reforms and opening-up, the Chinese miracle simply wouldn't have occurred. A similar push is vital if China is to move to the next stage in its remarkable development journey.
While the Chinese economy has demonstrated impressive resilience in the past several years, I do not think the global crisis has enhanced China's role in the world.
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