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In China, a quiet nod to the need for economic reform

A woman walks on a pedestrian overpass near a real estate project in Beijing on Monday, Feb. 27, 2012. China needs a new economic strategy after three decades of rapid growth and must reduce the dominance of state companies and promote free markets to achieve its goal of becoming a high-income society, the World Bank and Chinese researchers said Monday.

Alexander F. Yuan/Alexander F. Yuan/Associated Press

In the last 30 years, China has lifted 500 million of its citizens out of poverty and transformed itself from a backward, developing nation into the world's second-largest economy.

Now, as it fast closes in on the status of world's largest economy -- a title it is expected to assume before 2030 -- the country's leaders are also being warned they are approaching a major turning point, on par with that of Deng Xiaoping's original 'socialist market economy' policies of the 1980s.

In a report released Monday afternoon in Beijing, the World Bank's president, Robert Zoellick, has urged Chinese authorities to hasten the pace of reform in state-owned enterprises and banks and step up innovation in research and development if they want to support their country's incredible pace of growth.

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"China's leaders have recognized that the country's growth model, which has been so successful for the past 30 years, will need to be changed to accommodate new challenges," Mr. Zoellick said. "China has now reached a turning point in its development path. Managing the transition from a middle income to a high-income country will prove challenging; add to that a global environment that will likely remain uncertain and volatile for the foreseeable future and the need for change assumes even greater importance."

The timing of these recommendations is not accidental: Next week, Chinese Premier Wen Jiabao will give his annual address at the opening of the National People's Congress. Call it the Chinese equivalent of Canada's annual Speech to the Throne, or the U.S. State of the Union.

There will be no theatrics. Mr. Wen's public persona is soft-spoken and entirely without emotion, and his speech is unlikely to contain much that hasn't been heard before. Last year's two-hour address included pledges to do more to alleviate poverty and to control inflation.

But there are increasing signs that Chinese officials – despite their need to retain an iron grip on power in this authoritarian and often corrupt state – are acknowledging the need to further reform the state monopolies that crowd out private entrepreneurs.

The state mouthpiece newspaper, People's Daily, has cited Mr. Wen as calling for reforms as "an important task" and promising relaxing of restrictions on private capital investment into finance, energy, transport and social services.

And last Friday, its editorial pages warned readers of the inevitable criticism that comes with reform, implying perhaps more dramatic efforts ahead. "No matter how well-thought out a plan or how superior its wisdom is, reform will always incur some dissent. Those with vested interests will use their advantageous rights to speak to hinder reform, the media and public will scrutinize reform with a fault-finding view … It is better to have criticisms than a crisis, and it is better to have imperfect reform than a crisis of no reform," an editorial read.

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