China's economy sails to deeper reforms: U.S. experts

The government work report delivered by Chinese Premier Li Keqiang at an annual national legislative session suggests that China is resolutely determined to pursue economic transition and make further progress on its reform agenda, U.S. experts said.[Special coverage]

The ongoing session of China's National People's Congress (NPC), watched closely by overseas experts, came at a delicate moment when the world's second-largest economy was moving away from the miraculous double-digit growth of over three decades to what leaders have dubbed a "new normal," characterized by slower but higher-quality growth.

The economy, facing notable downward pressures amid a difficult economic overhaul, posted 7.4 percent growth in 2014, its weakest expansion since 1990. The annual growth target for 2015 was lowered to around 7 percent as widely expected, and Premier Li acknowledged that "the difficulties we are to encounter in the year ahead may be even more formidable than those of last year."

"China is in the middle of an extremely difficult, but necessary transition to a different growth model based on greater reliance for growth on domestic consumption, faster service sector development, and greater reliance on domestic innovation," said Pieter P. Bottelier, a senior adjunct professor of China studies at the School of Advanced International Studies of the Johns Hopkins University.

"That transition is currently in full swing and will probably take several years," he said in a recent interview with Xinhua.

"There's a long-term pattern of slowing investment and increasing consumption in order to have stable growth domestically for China going forward," echoed Douglas Paal, vice president for studies at the Carnegie Endowment for International Peace.

Bottelier believed China has made "some real progress" toward economic rebalancing in the past few years, mentioning evidences that the share of services in gross domestic product began to exceed that of manufacturing in 2013, while the share of consumption in GDP is slowly rising and the rate of credit expansion is falling.

"It is most important, for China's sake and for the world, that the leadership in Beijing keep a sharp focus on what needs to be done and the best ways to achieve it," said Bottelier, who served as chief of the World Bank mission in Beijing during the 1990s.

"The premier's speech gives me confidence that he understands the issues and remains determined to work through this difficult transition," he added.

Scott Kennedy, deputy director of the Freeman Chair in China Studies at the Center for Strategic and International Studies, shared similar views, saying that Li's government work report is "a coherent and reasonable early progress report" of the government's reform agenda.

"The different components fit well together, and the specific policies in each area are part of a larger whole. This indicates how serious the leadership is about economic reform," Kennedy told Xinhua

The government is moving ahead on reforms in many areas, including state-owned enterprises, the fiscal system, interest rates and foreign economic relations, he noted.

"As Premier Li has suggested, easy reforms have already been accomplished. What is left now is hard, so the government needs to be very focused," Derek Scissors, an expert on Chinese economy at the American Enterprise Institute, told Xinhua, expecting to see move decisive reforms in the financial sector, urbanization and state-owned enterprises.

Experts hold high expectations for China's further reforms in the financial sector after the Chinese central bank announced in January that it will accelerate financial reforms and opening-up this year.

In the report, Li said the government will promote the establishment of private banks, build a deposit insurance system, further liberalize interest rates and link its stock exchange in the southern Chinese city Shenzhen with Hong Kong at an appropriate time this year.

"The premier's references to financial sector reform and development indicate to me that he has the right priorities," said Bottelier, noting that financial reforms play a key role in China's economic transition.

Bottelier also hailed mass entrepreneurship as one of China's two new engines of growth. "I was encouraged by the premier's emphasis on the importance of supporting private entrepreneurship, including especially his reference to the need for young university graduates to start their own businesses. I believe that this is indeed the right direction to go," he said.