OECD forecasts greener economy from China reforms

China had made tremendous progress toward inclusive growth, but major reforms would ensure rapidly converging living standards and a greener economy in the next 10 years, the OECD said Friday.

In the past five years, China had weathered the global economic and financial crisis better than virtually any OECD (Organization for Economic Co-operation and Development) country and than many other emerging economies, the Paris-based group said in its latest survey of China.

In 2007, Chinese exports were hit by the crisis, but swift policy action mitigated the impact on the economy. As a result, the country's year-average growth remained above 9 percent in 2008, 2009 and 2010, only fractionally below the performance of the previous high-growth decade, the report said.

The Chinese economy slowed markedly in the past two years, with spillovers for the rest of the world, but rebalancing had made headway and a gradual re-acceleration was in train, it said.

"Growth troughed at 7.8 percent in 2012 and is set to regain momentum in 2013-14," the OECD data indicated.

"The gradual pick-up in activity provides a strong background for the ambitious reforms China needs to put in place to continue on the road to prosperity," OECD Secretary-General Angel Gurria said at a press conference after presenting the third OECD Economic Survey of China here.

China was well placed to enjoy a fourth decade of rapid catch-up and improving living standards, notwithstanding various risks, the OECD said.

The new economic survey of China examines three closely interlinked sets of issues: urbanization, relations between central and local governments and the environment.

It showed, in the near term, "global economic conditions might be less supportive than projected." There were also concerns about property prices and excessive off-balance sheet financing by the banking system and local governments. Over the longer run, "inequalities and ageing are sources of tension," the report said.

However, China could avoid the "middle income trap", provided reforms were continued or stepped up, the survey suggested, echoing the decision made by the 18th Congress of the Chinese Communist Party that "called for further reforms in a number of areas."

"We are encouraged by the new leadership's policy vision and welcome its emphasis on initiatives to make growth not only strong but also inclusive and sustainable over the years ahead," the OECD head said.

To sustain vigorous and socially inclusive growth over the longer run, "renewed reform momentum is required with respect to financial sector liberalization, open competition in markets for goods and services,education, research and innovation, all are as highlighted in the 12th Five-Year Plan (2011-15)," the OECD said.

The authoritative economic think-tank offered a spate of key policy recommendations to the Chinese government, including "deregulating interest rates, opening markets dominated by state-owned enterprises to competition, increasing the supply of building land, treating migrants to cities in an even-handed fashion, taxing carbon and deregulating energy prices."

"Full implementation of these reforms will foster socially inclusive urbanization, a key to a continued rise in domestic demand," it said.

The survey forecasts GDP growth of 8.5 percent this year and 8.9 percent in 2014.

From a long-range perspective, "China has now overtaken the euro area and is on course to become the world's largest economy around 2016, after allowing for price differences. Living standards will continue to improve fast, provided reforms are implemented, most of which feature in the 12th Five-Year Plan (2011-15) and in the conclusions of the November 2012 18th CPC (Communist Party of China) National Congress," the survey said in its executive summary.

China participates in a broad range of OECD work, alongside other Key Partners Brazil, India, Indonesia and South Africa. The peer review process behind the OECD's economic surveys is a key OECD contribution to the G20's Framework for Strong, Sustainable and Balanced Growth.

The OECD is the global economic policy forum. It provides analysis and advice to its 34 member governments and other countries worldwide, aimed at promoting better policies for better lives.