United States‘ respectively after 20 years‘ dynamic growth. Since 1979, China has been following a similar development strategy focused on exports and diversification as Japan, Korea and Taiwan, China earlier. In light of these economies‘ success in narrowing the gap of their economies with more advanced countries through industrial upgrading and the continued large technological gap between China and the United States, it would appear that China has the potential to achieve 8 percent growth for another 20 years. By that time, the per capita income of China measured in purchasing power parity may reach about 50 percent of the per capita income of the United States, and China‘s economy could be twice as large as that of the United States.<sup>19</sup> 45. The recently released joint World Bank – DRC<sup>20</sup> China 2030 report stresses that the growth scenarios for China would depend to a large extent on the reforms that would be adopted by both advanced economies and China. These reforms would have to address structural bottlenecks in these countries as well as growing risks from the global economy, including the tenuous fiscal positions of many European nations and the sluggish recovery in the United States. The China 2030 report presents two growth scenarios for the global economy and for China based on different assumptions about reform.

46. The high growth scenario assumes that key domestic reforms are being implemented in both advanced and developing economies by the year 2030 (Figure 17). In China, these reforms include the removal of various barriers to exit and entry of the private sector and the implementation of corporate reform, especially regarding dividends, for state-owned enterprises which would lead to greater competitiveness and would reduce imbalances on account of high corporate savings. Increased severance taxes on the extraction of energy resources such as coal, petroleum, and natural gas would limit concentration of wealth in these sectors. The banking system, which is largely composed of state-owned enterprises and dominated by four firms<sup>21</sup> , would be gradually commercialized and free to set interest rates according to market forces. This would allow the private sector to be able to borrow at the same rate as state-owned enterprises and credit would also become more easily available to small and medium-size enterprises. The ̳hukou‘ system<sup>22</sup> in China would be gradually phased out to allow for greater labor mobility between provinces and to help social security for the rural poor. The adoption and distribution of innovative practices that are fostered by favorable trade and industrial policies would lead to the domestic migration of labor from the low-productivity agricultural sector to higher-productivity manufacturing. These practices would also lead to greater capital accumulation, both physical and human, that will facilitate the development of manufacturing and service sectors.

47. These reforms would allow for higher productivity within the Chinese economy, as well as increased consumption of services by more affluent consumers. Assuming conservative rates of innovation, globalization of both production and consumption of services, and increased economies of scale, growth rates as high as 10 percent for China in the remainder of this decade, and 8 percent and 7 percent respectively for the following two decades would materialize. During 2020 and 2030, lower growth rates are expected due to diminishing returns on

> 19 Measured in market exchange rates, China could be at least the same size as the United States.

> 20 Development Research Center of the State Council of the People‘s Republic of China.

> 21 These are Bank of China, China Construction Bank, Industrial and Commercial Bank of China, and Agricultural Bank of China.

> 22 A household registration system that restricts the movement of people between rural and urban areas.

22