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WB chief warns China of 'middle income trap'

Updated: 2011-09-02 06:37

(Xinhua)

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WASHINGTON - China's economic growth has been a source of strength in the crisis, but the nation also needs structural changes to stave off a "middle income trap", World Bank President Robert Zoellick said Thursday.

The world's economic leaders need to "rebalance" their thinking as well as their economies. Fiscal and monetary policies have dominated the current discussion. That makes sense to a degree, but these policies are "insufficient for sustained growth", Zoellick cautioned in an op-ed published on the website of the Financial Times Thursday.

"We need action on the structural dynamics to generate jobs, higher productivity, and a sustainable long-term rebalancing. What happens in China is as important as Europe, Japan, or the United States," said the World Bank chief.

For the past three decades, China has enjoyed average annual growth of about 10 percent. By 2030, if China reaches a per capita income of 16,000 U.S. dollars, a reasonable possibility, the effect on the world economy would be equivalent to adding 15 of today's South Koreas, he noted.

Zoellick is scheduled to visit China from on September 1-5 to discuss China's key medium-term challenges, his fifth official visit to the country since becoming the head of the Washington- based bank in July 2007.

"It is hard to see how that expansion could be accommodated within an export and investment-led growth model, so China will need to rebalance through boosting domestic demand, lowering savings and increasing consumption," he said in the article entitled "The big questions China still has to answer".

"In the longer term, the drivers of China's meteoric rise are waning: resources have largely shifted from agriculture to industry; as the labor force shrinks and the population ages, there are fewer workers to support retirees; productivity increases are declining, partly because the economy is exhausting gains from the transfer of basic production methods," he said.

Zoellick noted that China's policymakers are well aware of " what" they need to do, as their 12th Five-year Plan points the way. Their current challenge is "how" to do it, and China's Development Research Center of the State Council, the Ministry of Finance and the World Bank are making joint efforts to turn "what" into "how" for a report later this year.

In an interview with Xinhua Tuesday on the eve of his trip to China, Zoellick held that other countries can also draw some lessons from China's experience on how to avoid the middle income trap.

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