China economic reforms must be bolder - researcher

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BEIJING, Nov 20 (Reuters) China must be bolder in tackling governance reforms if it is to keep developing at the blazing pace set over the past three decades, a new paper by a prominent Chinese academic says.

Solving the budget woes of local governments and giving greater power to the central bank and the finance ministry should be top priorities for Beijing, said He Fan of the Chinese Academy of Social Sciences (CASS).

He also argued the country should focus on boosting consumer spending, not yuan appreciation, to bring its rocketing trade surplus down to earth.

China's reforms since 1978, when it began to turn away from a command economy, have been politically tough but technically simple, and it has now reached a juncture requiring a more aggressive development strategy, he said.

''The 'cross the river by touching the stone' approach adopted by the first generation reformists cannot guarantee that China can sustain its vigour,'' He wrote in a research paper for the Institute of World Economics and Politics at CASS.

Entrenched bureaucracies in Beijing are hampering efforts to coordinate nationwide policies and the system needs to be shaken up, He added.

The researcher gave the example of the construction ministry siding with property developers while top leaders want to cool down real estate investment.

He singled out the National Development and Reform Commission, the planning agency, as wielding too much policy clout.

''Other departments, like the Ministry of Finance and the central bank, need to have more jurisdiction and independence,'' he said.

The central government should also consider writing off the debt of local governments, much as it rescued state-owned banks, and permitting them to issue bonds to raise revenue, he wrote.

China's fiscal system, established in 1994, charges sub-national governments with spending in major areas such as education, health, social welfare and urban maintenance, but leaves them with insufficient revenues to meet the costs.

He criticised radical appreciation of the yuan as a policy to slow China's export growth, saying it would unduly hurt Chinese farmers and could derail the global economy.

Instead, he said Beijing should use its strong fiscal position, with its public debt-to-GDP ratio at only 26 percent, to rebuild the country's social safety net and invest in education and health care.

Generous provision of such public goods would encourage ordinary Chinese to spend more and in time narrow the country's trade surplus, he said.

''Without a comprehensive and forward-looking plan, China's economy may become stuck in the mud and lose its momentum,'' he wrote.

REUTERS BJR HS1652

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