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Oct 29, 5:02 AM EDT

World Bank: China needs reform, not growth targets


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BEIJING (AP) -- China's growth could decline to close to 7 percent next year but Beijing should focus on overhauling its economy instead of trying to stick to official growth targets, the World Bank said Wednesday.

To avoid a sharper slowdown, Beijing needs to promote competition and efficiency by reforming its labor and real estate markets and its state-run financial system, the Washington-based lender said in a report.

Trying to stick to short-term official targets might set that back by prompting officials to pump credit into the economy and disrupt the development of markets, said the report's chief author, economist Karlis Smits.

"The policy focus should be on reforms rather than on meeting specific growth targets," said Smits at a news conference.

The World Bank report adds to urging by reform advocates who say the government of President Xi Jinping needs to move ahead with ambitious plans to give entrepreneurs and market forces a bigger role in the world's second-largest economy.

Economic growth slowed to a five-year low of 7.3 percent in the latest quarter. That is largely due to government efforts to promote growth based on domestic consumption and reduce reliance on trade and investment but has raised concern about possible job losses.

Xi's government has tried to downplay the high status previously given to official economic growth targets by saying this year's expansion might come in below the official 7.5 percent target.

Still, Beijing has launched mini-stimulus measures through higher spending on construction of railways and other public works, prompting warnings it is setting back efforts to give market forces a bigger role.

In an effort to make the economy more efficient and productive, the ruling party unveiled ambitious plans last year to open more industries to private and foreign competitors and to have state banks lend more to entrepreneurs who generate China's new jobs and wealth.

But the ruling party has yet to make major changes, possibly due to opposition from political factions with ties to state companies that don't want to lose monopolies, access to subsidized credit and other privileges.

Beijing has reined in dangerously fast growth in lending, but financial industry reform is "progressing more gradually" than other changes, said Smits. He said that without changes, lending will be inefficient and hold back economic development.

Growth in consumer spending is slower than planned, due to uncertainty among Chinese households caused by weakness in property prices, said Smits. He said longer-term, efforts to boost consumer spending also will be held back by China's high levels of inequality in wealth and income.

"In a `no reform' scenario, economic activity would start to stagnate," he said.

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World Bank: http://www.worldbank.org

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