China Must Implement Much Needed Reforms – World Bank
Benjie Batanes | | Jul 01, 2015 06:49 AM EDT |
(Photo : Getty Images/Kevin Frayer) The World Bank report listed a number of issues that the Chinese government must tackle in order to sustain the continued growth of its economy.
Chinese authorities must implement some major changes in the way the economy is run, a World Bank report said on Wednesday, according to the Wall Street Journal.
Currently, China's economic growth is mainly due to the wide-scale manufacture of goods and government instituted investments. The World Bank sees the need for China's economy to instead rely more on consumer demand and services to fuel its growth.
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The World Bank report listed a number of issues that the Chinese government must tackle to sustain the continued growth of its economy.
One of them is the country's banking system, which allegedly sees banks handout a bulk of their loans to government-owned corporations. Many of these loans cannot be paid and this forces the central government to assume the financial obligation, according to ABC News. Meanwhile, private entrepreneurs are finding it difficult to obtain loans from banks even if they are more capable of repaying the loans than state-owned corporations.
Business Spectator reported that the World Bank's findings shows that more than half of the commercial bank assets in China are owned and fully controlled by the government. The report also found that some of the banks are owned and regulated by the Chinese government, who is also the client.
This assumption of multiple roles by the authorities has stifled competition among banks and incurred large amount unpaid debts. The banks are reportedly operated based on the political whims of the government.
China's economy has started to slow down and Chinese leaders are under pressure to adopt measures that will boost the economy and at the same time implement much-needed reforms that may negatively affect economic growth in the short run.
The report urges the Chinese government to leave the operations of commercial banks to the private sector and concentrate on regulating the banking industry instead.
Some experts have however cautioned against the idea of the Chinese government completely relinquishing its role in banks. Economists have also argued that its more prudent to hand out loans to government-run enterprises since credit is guaranteed by the state. Many have expressed doubt that Beijing would be willing to give up its ownership of banks as the World Bank report recommends.
TagsWorld Bank Report, chinese financial reform, chinese economic growth, China Banking, World Bank Report on China Economy
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