China: 2020: West eclipsed by rising star

Within the next 20 years, China could be the world's second largest exporter, after the United States; its consumers are likely to have a purchasing power greater than that of all Europe combined; incomes levels could be on a par with those prevailing in Portugal today, and poverty could be eliminated by 2020.

These amazing predictions are all contained in a major report on the Chinese economy released by the World Bank yesterday. The report puts the bank's seal of approval on a growing number of studies which depict China as a dominant economic force in the new century.

The scale of Chinese achievement, says Vikram Nehru, the report's principal author, is on a par with the emergence of the US as a leading trading nation in the second half of the nineteenth century and Japan's economic explosion from 1952-1995.

For almost two decades, between 1978 and 1995, the Chinese economy grew annually by an average of 9.4 per cent. The report estimates that for the next 20 years the economy will achieve an annual growth rate of 6.5 per cent.

The World Bank says that China's robust economy has been supported by the way the government has handled economic reform and economic growth. In addition, the economic boom has benefited from a supportive Chinese diaspora which has poured investment and know-how into the Chinese economy.

However, this impressive level of growth cannot be guaranteed, the expansion of the Chinese economy has thrown up a number of serious challenges, says the World Bank. Identified as the most serious is the speeding up of reform of the vast state enterprises, half of which are loss making. The Chinese Communist Party congress, now underway, has pledged reform but it may not be sufficient.

Meanwhile, capital-raising is hampered by the inability to channel the enormous bulk of savings into China's infrastructure needs. Capital markets, especially stock markets, are badly regulated and far more like casinos than serious capital-raising centres. The lack of a well-developed legal system to administer the increasingly free market is undermining stability and depriving China of a framework within which to sustain economic growth.

Aside from these problems China, says Mr Nehru, is suffering from mounting environmental pressure, growing inequality both between individuals and between regions, stubbornly high poverty levels, employment insecurity and periods of economic turmoil, such as high bouts of inflation, which stem from uncompleted economic reforms.