The World Bank, heeding a Confucius saying “A man who does not plan long ahead will find trouble at his door”, released this week a landmark report into the anticipated challenges and opportunities that China will grapple with over the next 18 years.
Titled China 2030: Building a Modern, Harmonious, and Creative High-Income Society, the Report makes for compelling reading.
It notes that there is “growing recognition within China that the current pattern of production and growth is unsustainable …”.
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This one finding is a direct challenge to the Communist Party to implement reforms that will place China’s future growth on a more sustainable footing and to ensure that economic growth is not at the expense of social and environmental concerns.
On the release of the Report, World Bank President Robert Zoellick paid tribute to the past achievement of Chinese growth policies that have seen “600 million people lifted out of poverty” and achieved growth rates of almost 10 per cent per annum for more than 30 years.
Without doubt, the Chinese economic and industrial revolution has had major implications for the world economy while posing challenges for the world’s geo-political balance.
While growth has been strong in the past, the report warns that it would be wrong to assume that growth will continue uninterrupted, based on the policies that have underpinned development to date.
The Report also notes that while China’s growth has been phenomenal, there remains an enormous challenge to ensure the benefits of growth flow through to the Chinese people still living in poverty.
The Report details in particular how China will face the challenges of an ageing population, which will impact before the nation is comparatively wealthy.
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Many developed countries, including Australia, are well aware of the impending challenges posed by the ageing of the Baby Boomer generation that will put enormous strains on resources as large numbers of people retire in a relatively short time.
This wave of retirements coincides with a period of lower fertility, meaning there will be fewer new taxpayers to fund the increasing demands on government for health and other services.
The Howard Government commissioned two Intergenerational Reports, in 2002 and 2007, detailing the scale of the looming challenges of an ageing population, and the estimated cost burden on future generations.
These reports made for sober reading and underpinned the Howard Government policies to retire all government debt and save tens of billions of dollars in future funds.
According to the China 2030 Report, policies to deal with the ageing challenge will be crucial to maintaining social stability in coming decades.
For example, within five years China will have fewer new workers entering the workforce than those who are retiring from it.
The shrinking pool of relatively cheap labour is already creating challenges for China’s manufacturing sector, with some companies seeking lower cost alternatives in other countries within South-East Asia and Africa
There is a particular sensitivity within China about these challenges due to the structure of its political system.
There is little doubt that debates about the role of government and the rights and responsibilities of individuals are likely to challenge the Communist Party’s tolerance for political discourse.
The implication of social disruption from large-scale and rapid urbanisation is also an issue that China’s leaders need to consider, according to the report.
China is also under increasing international pressure to adopt a market-based exchange rate for its currency, which is currently pegged to the US dollar.
While this has been a source of ongoing tension between China and the United States, China’s leadership has resisted calls to float the exchange rate.
The dispute has at times bordered on confrontation as some political leaders have suggested that China be officially designated a “currency manipulator” to pave the way for retaliatory sanctions.
The China 2030 report identifies six key areas for reform to enable the nation to build on its current strengths.
These are to: clarify the roles of the private and the government sectors to ensure a full market economy operates; boost investment in research and development; more effectively deal with environmental issues; ensure that opportunity is available for all its citizens and provide a social safety net; strengthen government sector finances and ensure spending at all levels is sustainable, and; integrate more fully with global markets.
There are many challenges in the report for China’s policy makers but it also details the tremendous opportunities for China and the world.
The embrace of greater freedom of speech and greater tolerance of political debate will ultimately strengthen Chinese society, not weaken it.
That is an outcome the whole world will embrace.