China's economy picking up steam (4)

Pressure remains

According to Zhang, in the NDRC's analysis, the foundation for an economic rebound is not firm enough.

"Under the background of a slow global economic recovery and an ongoing financial crisis, we must be prepared for difficulties and challenges in the long run," said Zhang.

Qin Xiao, Council Chairman of Boyuan Foundation, said at the China Capital Innovation Summit held on November 13 that basic factors propping up China's economic growth are changing.

First, China is currently in the middle and late stages of industrialization. The "catching-up" growth that relies on extensive input has reached its end, but present systems, human resources and the level of technology have not shown that China has the conditions and capability to leap over the middle-income trap and enter an "innovation- oriented society."

Second, after 30 years of sustained and rapid progress, China's urbanization has begun to slow down. The average annual urbanization growth rate is set to drop to 0.8 percent during the 12th Five-Year Plan period (2011-15) from 1.35 and 1.45 percent during the ninth and 10th five-year plan periods (1996-2005), respectively. The impetus for economic growth brought by urbanization is weakening.

Moreover, since 2007, the number of migrant workers has been declining despite increasing wages. Some coastal cities are even suffering a shortage of migrant workers. All this indicates that a time of infinite labor supplies has passed. Together with the arrival of an aged society, the "demographic dividends" that China has long enjoyed is almost over.

"Significant changes of even the most basic factors will affect China's economic growth," Qin said.

According to Qin, the potential of future economic growth depends on systematic reform. At present, three major economic reforms are needed: a relaxation of monopoly, financial reform and income distribution reform.

Relaxing monopoly will solve the problem of inadequate effective supplies, income distribution reform will solve the problem of inadequate demand, and financial reform will improve efficiency in resource allocation.

"If the three reforms can be effectively advanced, the market and financial resource allocation problems that restrict the Chinese economy will be effectively solved, consumption potential will be fully realized and the Chinese economy will hopefully step out of its present predicament," Qin said.

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