By Nick Mann | 19 March 2012
China will have to spend more on social services and give local government more spending power to achieve a ‘better quality’ of growth, according to the managing director of the World Bank.
Speaking yesterday at an event in Beijing, Sri Mulyani Indrawati said weakened external demand and slower global growth meant China’s focus would increasingly have to shift towards increasing domestic demand.
‘China’s growth model may, therefore, need to be redesigned to be more balanced; socially, environmentally and globally,’ she explained. ‘It is not about the level of growth, it is about a better quality of growth, it is about equality and inclusive growth.’
A more domestic focus would show up existing pressures that will need to be tackled, she said, including China’s aging workforce, social inequality, demands for greener growth and calls for ‘better and more efficient’ urbanisation.
To address this, investments could be made in improving health care, education and welfare to maintain social harmony, while policies should also reflect a balance between urban and rural growth.
In particular, action needed to be taken to address the ‘great challenge’ created by differing levels of access to public services, and inefficiencies in those public services, Sri Mulyani said. Combined with an ageing population, a growing middle class and pension commitments, China could face a ‘lag’ in changes to its public institutions and having to meet ‘fiscally unsustainable’ entitlements to its population, she said.
‘A larger allocation of fiscal resources to social services would need to be combined with an improvement in those services,’ she said. This would involve ‘enhancing capacity and introducing greater transparency, accountability and competition based on quality and efficiency of the service delivery’.
She added: ‘Improving and strengthening fiscal decentralisation is imperative – matching local government revenue to expenditure responsibility, more equitable transfers and introducing greater fiscal transparency, including bringing public resources “on budget”.’
Also speaking at the event, International Monetary Fund managing director Christine Lagarde said she was ‘encouraged’ by the Chinese authorities’ focus on growth being more widely shared across the country’s people. This had been underscored by the latest ‘Five Year Plan’ of policy measures.
‘Such a comprehensive package of policies, as well as investment in the social sectors, will help China shift toward consumption-led growth, strengthen the economy to face future challenges and lead to more inclusive growth for all the Chinese people,’ she added.
