China's new leaders face tough economic choices

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China's new leaders face tough economic choices

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China's economic model that delivered three decades of double-digit growth is running out of steam.

01 November,2012 08:19 pm

The countrys next leaders face tough choices to keep incomes rising. But they dont seem to have ambitious solutions. Even if they do, they will need to tackle entrenched interests with backing high in the Communist Party.The cost of inaction could be high. The World Bank says without change, annual growth could sink to 5 percent by 2015 dangerously low by Chinese standards. Some private sector analysts give even gloomier warnings.The governments own advisers say it needs to promote service industries and consumer spending, shifting away from reliance on exports and investment. That will require opening more industries to entrepreneurs and forcing cosseted state companies to compete. State banks would have to lend more to private business that is starved for credit.The ruling partys latest five-year development plan promises reforms in broad terms. Premier Wen Jiabao apologized at a news conference in March for not moving fast enough and vowed quicker action. But many changes could face opposition from Chinas most influential factions state companies, their allies in the party, bureaucrats and local leaders.If the challenge is, can they do radical reform all at once, we know that wont happen because these leaders arent powerful enough, said Scott Kennedy, director of Indiana Universitys Research Center for Chinese Politics & Business in Beijing. They are facing interests which wouldnt possibly allow that to occur.Also at issue is how much Communist Party leaders are willing to cut back state industry that provides jobs and money to underpin the partys monopoly on power.Li Keqiang is the man in line to lead reforms as the next premier, Chinas top economic official. Now a vice premier, Li is seen as a political insider with an easygoing style, not a hard-driving reformer. Along with the rest of the partys Standing Committee, the ruling inner circle due to be installed in November, Li will govern by consensus, which could blunt their force.They are under pressure to change the economy, but they will not demolish party control, said Mao Yushi, an 83-year-old economist who is one of Chinas most prominent reform advocates. He co-founded the Unirule Institute of Economics, an independent think tank in Beijing.Li showed his political skills but little zeal for reform as governor and later party secretary of populous Henan province in 1998-2004.