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Right reform mix could sustain China growth: World Bank

China should be able to maintain real economic growth of about 8 percent a year for the next two decades with the right mix of technological innovation and structural reform, World Bank chief economist, Justin Lin, said on Monday.
/ Source: Reuters

China should be able to maintain real economic growth of about 8 percent a year for the next two decades with the right mix of technological innovation and structural reform, World Bank chief economist, Justin Lin, said on Monday.

Historical precedent from Japan, Taiwan and South Korea showed sustained high growth was within China's grasp and delivering on it was the most important contribution the world's second biggest economy could make to helping tackle the global fallout from Europe's debt crisis, Lin told Reuters.

"I'm confident there is a possibility for China to maintain this kind of 8 percent growth rate continuously for 10 years or 20 years," he said in an interview in Beijing, using as his reference point data showing that Chinese per capita income was roughly 21 percent of the level of the United States.

Reaching that point in 1951 saw Japan enjoy 20 years of growth averaging 9.2 percent, while Taiwan grew 8.3 percent for two decades after reaching the 21 percent benchmark in 1975 and South Korea chalked up an average 7.6 percent expansion in the 20 years from 1977 when it hit the same level.

But Lin stressed the need for continuous economic reform if China was to achieve the same potential.

"For sustained growth, the most important source is continuous technological innovation and structural transformation," he said.

Growth in China is widely expected to ease for a fifth successive quarter in the first three months of 2012, down to an annual rate of 8.2 percent from Q4's 8.9 percent, with many private sector economists forecasting the country's slowest full year of growth in a decade.

Chinese growth had an added premium in a rapidly cooling global economy that was constrained by debt and softening consumer demand -- factors that have this month seen the World Bank slash its global growth forecast to just 2.5 percent in 2012 and warn of worse if the euro zone debt crisis deepened.

"Sustainable growth in China is good for China and it's good for the world. For the high income countries -- both the European countries, the U.S. and Japan -- the most important constraint is growth," Lin said.

"As the chief economist of the World Bank, leaving aside that I am Chinese, my advice would be how can China continue its structural reform to maintain its growth momentum? If we can do that it is good for China and it is good for the world."

EURO ZONE RISKS

Lin also said spillover risks to the rest of the world from Europe's crisis remained substantial and it was up to European Union nations to find the necessary solutions.

EU leaders will sign off on a permanent rescue fund for the euro zone at a summit on Monday and are expected to agree on a balanced budget rule in national legislation, with unresolved problems in Greece casting a shadow on the discussions.

The summit -- the 17th in two years as the EU battles to resolve its sovereign debt problems -- is supposed to focus on creating jobs and growth, with leaders looking to shift the narrative away from politically unpopular budget austerity.

Lin said Europe's focus on delivering austerity was fraught with risks and should be pursued carefully with appropriate consideration given to policy support where needed.

"The challenge is that this kind of structural reform all has some kind of contractionary implication. That means you're going to reduce demand, slow down growth, increase unemployment and as a result the intention to reduce government debt may not be achievable," he said.

But the critical issue was to avoid a hard default on Greek debt, Lin said.

"I do think that European countries have the resources and certainly also the wisdom to understand the necessity of addressing this issue. Because if the short term issue is not contained, it can turn into a crisis like Lehman Brothers and so on and certainly the euro zone would be badly hurt," he said.

Negotiations between the Greek government and private bondholders over the restructuring of 200 billion euros of Greek debt made progress over the weekend, but are not expected to conclude before the summit begins at 10 a.m. ET.

Until there is a deal between Greece and its private bondholders, EU leaders cannot move forward with a second, 130 billion euro rescue program for Athens, which they originally agreed to at a summit last October.