(As Prepared For Delivery)
Your excellencies, Chairman Zheng, Minister Liu, Senior Minister Shanmugaratnam, Colleagues from other International Organizations, it is great to meet all of you in person again.
It has indeed been far too long that we were separated because of COVID – and so it is wonderful to be back again in China.
This year’s China Development Forum takes place against a backdrop of considerable uncertainties about the trajectory of the world economy. We have witnessed this in the economic projections throughout the world, subject to decisions related to combating inflation, dealing with the impact of Russia’s war in Ukraine, and continuing supply chain challenges – among other issues.
No country can escape these pressures, and all will need to deal with the short-term as well as the longer-term challenges to achieve sustained economic and inclusive growth.
I will focus today on the longer-term aspects for China’s economic growth.
The country over the last couple of decades has achieved an impressive economic transformation essentially eliminating extreme poverty and creating a large, increasingly prosperous middle class.
On this basis, it may be a good time for policymakers to increase focus on achieving three long-term objectives.
1. To become a high-income country by 2035 through productivity-led and environmentally sustainable growth;
2. To peak carbon emissions before 2030 and to achieve carbon-neutrality before 2060;
3. And to spread wealth gains more equally among the Chinese people.
I will focus my brief remarks on key structural reforms that could help achieve these objectives and support China’s transition from high-speed to high-quality development.
First, reviving productivity growth has become a priority. China’s productivity growth has slowed from an average of more than 3 percent in the decade before the 2008 global financial crisis to about 1 percent in the decade after. Together with a shrinking workforce, this is weighing on China’s medium-term growth potential.
To revive productivity growth, policymakers have focused on fostering innovation. China’s innovation capacity has improved steadily in recent years, and the country is a global leader in e-commerce, financial technology, high-speed trains, electric cars, and other sectors.
Yet China’s average productivity level is still about half of the OECD average. This means China still has much to gain from catching up through adoption and diffusion of advanced technologies.
More efficient resource allocation is another source of productivity growth. This will require deepening reforms to increase the role of markets, the private sector, and competition. Stronger institutions to manage insolvency, enterprise restructuring, and bankruptcy could facilitate more dynamic enterprises, enabling market entry and exit, and the reallocation of resources toward more productive enterprises.
Second, to reach its climate goals, China will need to transition faster to carbon neutrality than today’s advanced economies, and at lower levels of per capita income and emissions – as was recently laid out in our new series aimed at integrating climate and development, the Country Climate and Development Reports or CCDRs.
This will require significant investment. According to World Bank estimates, for transport and electricity sectors alone, China needs on average an additional 1.1 percent of GDP from now until 2060 in green investments. And to put a dollar value behind this, this will be a cumulative 14-17 trillion dollars in that time period.
However, public investment alone will not be sufficient. The big challenge will be to massively mobilize the private sector and here, incentives and private sector friendly environment will matter.
An ambitious reform agenda could include an economy-wide use of carbon pricing, energy market reforms, and stronger incentives for low carbon land use in agriculture. And innovation will also help in the green transition.
The Private sector will also need a predictable regulatory environment and a level playing field with access to finance and markets.
The transition to low-carbon and climate-resilient development will create economic and social risks, especially for some of China’s less developed interior provinces and communities, which are more dependent on coal and other carbon-intensive industries. These risks need to be managed to ensure the transition is not just fast but also fair and that affected people are not left behind.
This leads me to my final point: policy makers are increasingly focused on ensuring that development translates into prosperity for all citizens.
As I mentioned before, China reached a remarkable milestone of eradicating extreme poverty (defined as those living on less than$1.90 per day).
As China is set to become a high-income country, it will need to confront new inequality challenges. While declining in recent years, inequality in income and opportunity, between coastal and interior provinces, and between rural and urban areas, remains a concern. We estimate that around 200 million Chinese continue to live on $6.85 per day or less – the standard the World Bank uses to measure poverty in upper middle-income countries. And these low-income households are particularly vulnerable to climate change, transition risks and other economic shocks.
More progressive fiscal policies and stronger safety nets could help stem inequality. On the revenue side, enhancing the role of progressive income and property taxes could contribute to lowering inequality. On the spending side, mobilizing public investment in health and education could help narrow the gap in access to quality services across regions and between urban and rural areas. Progress toward establishing a unified, nationally funded social security system would equalize benefit levels while allowing workers to move across provinces without losing retirement or other social benefits.
Underlying these reform proposals is the ability of local governments to finance them. Greater revenue autonomy and predictability of inter-government transfers will ensure that local governments have the resources to expand social safety nets, improve the quality of public services, and invest in climate mitigation and adaptation.
In conclusion, your Excellencies, it is encouraging that there is a strong consensus on the diagnostics of what needs to be done and in fact many of the reforms I just mentioned are already priorities of the government and laid out in the 14th Five Year Plan.
Implementation of some of them was paused amid the challenges created by the COVID-19 pandemic.
The recovery now offers a unique opportunity to redouble efforts to accelerate China’s transition to green, resilient, and inclusive development.
With regard to climate goals, it will not be enough to focus on the internal challenges posed by climate change, it will also be very important that the world community works together towards the full implementation of the Paris Agreement and to make sure that limiting the increase of 1.5 degrees Celsius remains achievable. And in this area, I believe that we really need to redouble our global efforts.
The World Bank as the largest financier of climate finance in developing countries is fully committed to do its part – as we are committed to our strong partnership with China and turning these economic shifts into growth opportunities that will benefit its people and contribute to a more sustainable future. Thank you.