The World Bank today cited four key factors, including reforms, better economic management, recovery in government revenues, higher labour and capital productivity as key reasons for China’s sustained economic miracle. China’s GDP growth exceeded 10 per cent four times in a row till last year. “Although this does not differ much from the average during 1978-2005, but the stability of the growth at a very high level for a sustained period of time is impressive,” the World Bank’s latest China quarterly update said. The bank also forecasted favourable prospects in future, with a possible growth rate of 9.6 per cent in 2007. The economic reforms continued to make China’s labour and capital more productive, the bank said. China’s accession to the World Trade Organisation (WTO) in 2001, with its increased entry and competition and access to foreign markets, has provided a boost for trade, investment, and competition. This decade China also reaped full benefits of the State Owned Enterprises (SOE) reforms initiated in the mid-1990s. The reallocation of labour and capital increased productivity in the economy as a whole and also boosted the performance of SOEs, the bank said. The increased profitability and a recovery in government revenues boosted already high savings and investment. Enterprise savings increased on the back of enterprise reforms, a shift towards more industrial activity and a more private economy, and gains in productivity and profitability more generally. Government savings increased after the 1994 fiscal reforms of which a significant part was used to finance investment. China’s high saving and investment allowed more capital deepening and infrastructure construction, which in turn increased labour productivity and potential GDP. Third, better macroeconomic management has reduced economic volatility and risk. Actual GDP growth has remained much closer to potential GDP growth in this decade than before. More macroeconomic stability also promotes growth by lengthening horizons of investors and reducing the probability of misallocation of investment. Fourth, the global environment has been very favourable to China’s growth, the bank said. Global growth and trade have been high and there has been far less financial turmoil. Last five years has been remarkably resilient, and averaged around four per cent, levels not seen since the late 1980s. World trade facilitated China’s exports, which grew on average with almost 30 per cent per year, the bank pointed out.-Anil K. Joseph
