CNN News - World Bank warns on China’s future

Hong Kong (CNN) – It’s the stuff of urban myth that if a billion Chinese all jumped off a chair at the same time, the earth would shift off its axis.

Now the World Bank is considering just such a question in the context of China’s breakneck growth: Can a billion Chinese become middle class without disrupting the world, fouling the environment and tearing apart the fabric of their own society?

The World Bank report “China 2030: Building a Modern, Harmonious, and Creative High-Income Society,” released on Monday, says China has the potential to become a modern and creative high-income society – but it won’t be easy.

The report outlines six critical reforms China will need to address if it is to reach its goal of becoming a high income society over the next 20 years.

Topping the list is full transition to a market-based economy.

World Bank to China: Free up your economy

Other findings include: accelerating the pace of innovation; using green growth as a driver for development; expanding health, education and employment opportunities for all; modernizing its domestic fiscal system; seeking mutually beneficial relations with the world.

According to World Bank Group President Robert B. Zoellick, China faces some stark choices ahead.

“This is a country that because of the one-child policy will grow old, in terms of demographics, before it grows rich,” Zoellick said.

“This is a country that has grown almost 10% for the past 30 years, but what the Chinese have recognized is that the model of that growth – driven by exports and to some degree by investment – has to change.”

Zoellick said the next stage for China would be to build an economy geared to consumer and domestic demand.

Critical to this, the report said, would be reforms to state-owned enterprises, private sector development and increased competition in all sectors.

In the enterprise sector, the banks would need to be commercialized, allowing interest rates to be set by market forces, and its legal and supervisory infrastructure deepened ahead of the internationalization of its financial sector.

In particular, the report identified reforms to its labor market currently regulated by the hukou registers – the system of residency permits that can restrict where a person works.

“China needs to accelerate phased reforms of the hukou system to ensure that by 2030 Chinese workers can move in response to market signals,” the report said.

Globalizing its approach to innovation and using its lead in research and development in renewable energy were also identified as areas where the country could build an international competitive advantage in global sunrise industries.

Expanding social security and reversing inequality were identified as key factors in creating a stable economy.

However, the report said many of the proposed reforms would hinge on strengthening China’s fiscal system, making sure the fiscal system adequately anticipated future budgetary demands at all levels of government.

“You read the stories about problems with land in China,” said Zoellick. “Many of the provincial city governments have to take the land to finance themselves, so there needs to be a revenue system that matches the expenditure level.”