Market-based reforms can help China's quality growth: Italian experts

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Market-based reforms can help China's quality growth: Italian experts

(Xinhua) 08:18, October 18, 2013

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Market forces can help China foster a new model of development based on greater consumption, higher quality manufacturing and value-added innovations, Italian experts told Xinhua.

China needs to reduce its dependence on investment, boost consumption, improve efficiency and develop more value-added businesses to maintain a necessary growth to ward of declining investments, a labor force shortage and an increase in costs, Davide Cucino, president of the EU Chamber of Commerce in China said.

"To give market much greater role would assist development of private enterprises, lead to a more equitable distribution of wealth, force efficient usage of capital and resources, and give companies freedom and incentives to strive for productivity-enhancing innovation to meet China's social needs," he said.

Three reforms need to be prioritized, Cucino explained. "First, a financial reform, in particular interest rates liberalization, is needed, and China should restrain current high level of credit growth and incentivize economic efficiency by requiring banks to act as real banks."

Secondly, there should be "sweeping industrial policy reforms to eliminate improper intervention and frequently discriminatory measures that distort the market, in an attempt to develop domestic industries," he added.

"Finally, and most importantly, a steady withdrawal of SOEs (state-owned enterprises) from many areas of market and an increase in competition in sectors currently dominated by SOEs are required," he said.

"This would allow private enterprises to fully develop alongside SOEs in a fair environment, and help create conditions to ensure that the most productive, efficient and innovative companies prevail," he said.

In his point of view, the government should not be "a game-player" but "a rule-setter and rule-enforcer" through developing regulations to provide a framework of equal competition and ensure the enforcement of these regulations.

"These reforms must happen now; it is not desirable to introduce changes until a crisis emerges," he explained.

He warned that many countries have fallen at this hurdle and become ensnared in the middle-income trap.

"To make the leap, China needs to follow the example of countries that have managed to find new and sustainable drivers for growth," he added.

Alberto Forchielli, managing partner at Mandarin Capital Partners, agreed with Cucino that a wider economic restructuring requires a decrease in government control and a natural functioning of a fair, open and competitive marketplace.

"First, the umbilical cord that binds government-owned companies to state banks should be cut. Interest rates should be liberalized, while SOEs should be required to pay more dividend to avoid waste of money. The creation of private banks would also be useful to foster a more competitive marketplace," he told Xinhua.

Obstacles to China's economic restructuring are mainly from burdensome bureaucracy, the interests of local administrations as well as SOEs and state banks, which have gained growth and power from the old model of development, Forchielli said.

He hoped that the Third Plenary Session of the 18th CPC Central Committee due in November is an opportunity to "start the new policies that China's leaders perfectly know are necessary and both citizens and economists are awaiting for."

"But it is fundamental that, beside theory, the government should introduce necessary regulations and applicable laws."

The growth models adopted by some other countries such as Singapore, Germany and South Korea, can provide useful examples for China, while the United States and Japan can also be viewed to avoid certain mistakes, Forchielli added.

He also said that an efficient economic restructuring requires political opening, especially in the service industry.