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China: Economic reform important challenges remain

Economic reform has produced impressive results but important challenges remain

China's gradual economic reforms have opened the economy to international trade and investment and have made it one of the fastest growing in the world, with a nearly nine-fold increase in GDP per capita since 1978, according to a WTO Secretariat report on the trade policies and practices of China.

Ongoing trade and structural reforms, given added impetus by China's membership of the WTO since 2001, have made it the world's third largest trader and one of the largest FDI recipients. These reforms have also reduced the proportion of China's population living in poverty from 73% in 1990 to 32% in 2003. At the same time, however, income disparity has increased, especially between the coastal and inland regions and between urban and rural areas. Trade and investment barriers have declined considerably, in part due to WTO commitments. Nevertheless, the report notes that the Government continues to intervene to “manage” trade, including for domestic supply considerations.

Continued structural reform will increase unemployment in certain sectors and over 100 million jobs will need to be created over the next decade. The report suggests it may be necessary to reappraise the current policy to attract investment to export-oriented capital intensive manufacturing and to place greater emphasis on removing impediments to the expansion of the services sector. The Government also needs to accelerate its efforts to raise the quality of the labour force in order to move away from traditional low-skilled, labour-intensive industries into higher value-added production. Other challenges include bottlenecks in infrastructure as well as the continued need to restructure the financial sector and capital markets by making them more market oriented.

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