China should reform its social security system in a bid to boost domestic demand and transform the growth mode that relies too much on exports, economists said Tuesday.
Vivek Arora, IMF's chief representative in China, told a financial forum that China will have to rely more on domestic consumption if it seeks to repeat its economic miracle over the past 30 years.
Exports, the pillar of China's growth, collapsed late last year as the major markets, including the United States, Japan and the European Union, entered recession.
China's economy therefore suffered sharp slowdown. The gross domestic product (GDP) expanded 9 percent year on year in 2008 and6.1 percent in the first quarter of 2009, compared with 13 percent in 2007.
Economists warned that it is not easy to revive Chinese economy by boosting domestic demand as many citizens are unwilling to spend because of the lack of sufficient social security.
"China should carry out social security reforms, such as in medical care, pension fund and education, to reduce economic uncertainty and boost higher spending," Arora said at the two-day China Finance Summit, which ends Wednesday.
He acknowledged that China's economic data for March and April has shown signs of recovery as its 4-trillion-yuan (585 billion U.S. dollars) stimulus package fed through the economy.
The infrastructure-focused government spending could ease the slowdown in the short term, but it might not be the solution in the long run, Arora stated.
Pier Carlo Padoan, deputy secretary of the OECD, told Xinhua that many countries need to change their growth models and in China, the government should improve social security for that purpose.
Padoan added that he is convinced that China will succeed in transforming the growth mode to rely more on domestic consumption.
Eric Maskin, the 2007 Nobel Prize Laureate in Economics, told reporters that he anticipated the high saving rate in China to turn into more domestic consumption.
China's saving rate rose to 49.9 percent in 2007 from 37.5 percent around 1998, compared with 4.2 percent in the United States in February this year.
Arora added that China should encourage major banks to provide more funding to small and medium-sized enterprises (SME) to help them ride out of the crisis.
Chinese banks usually lend to big state-owned enterprises and infrastructure projects while shying away from SMEs for fear of bigger bad loan risk.
Arora said that despite the slowdown, China might continue to be the largest contributor to the world's economic recovery because many other major economies see their GDP contracting.
The IMF official said the global economy will not repeat the Great Depression in the 1930s as the countries worldwide have taken forcible and coordinated efforts to tackle the crisis.
Maskin said the global financial crisis might come to an end by the end of the year and the financial market will return to normal again next year. However, he admitted that it will take longer for the real economy to recover.
(Xinhua News Agency May 20, 2009)
