PARIS, MAR 24, 2013: CHINA has made tremendous progress toward achieving inclusive growth, but major reforms are needed to ensure a fourth decade of rapidly converging living standards and a greener economy, according to the OECD’s latest Economic Survey of China 2013.

These reforms include deregulating interest rates, opening markets dominated by state-owned enterprises to competition, increasing the supply of building land, treating migrants to cities in an even-handed fashion, taxing carbon and deregulating energy prices. Full implementation of these reforms will foster socially inclusive urbanisation, a key to a continued rise in domestic demand.

The new Survey, presented in Beijing by OECD Secretary-General Angel Gurría at a press conference with Mr. Yang Weimin, Vice Minister of the Office of the Central Leading Group on Financial and Economic Affairs of the Chinese Communist Party, forecasts that GDP will grow by 8.5% this year and 8.9% in 2014.

"The gradual pick-up in activity provides a strong background for the ambitious reforms China needs to put in place to continue on the road to prosperity,” Mr Gurría said. “We are encouraged by the new leadership’s policy vision and welcome its emphasis on initiatives to make growth not only strong but also inclusive and sustainable over the years ahead.”

Key policy recommendations include:

+ Maintain prudent macroeconomic management. Monetary policy can remain relatively accommodative in the near term, but it should be forward-looking and guard against inflation risks. China should deal with the off-budget liabilities of local government financing platforms and substantially raise the annual quotas for new building land, to reduce pressure on property prices.

+ Move ahead on financial sector reforms. China should continue moving toward market-determined interest rates and align the regulation of bond markets for long maturities with market practices for shorter ones. Quotas for inward investment in equities and long-dated bonds should progressively increase, while allowing for greater use of offshore renminbi deposits in mainland China and greater exchange rate flexibility.

+ Strengthen policies to boost competition and innovation. Rules for opening new sectors to private investment - including foreign investment - should be clarified and the time needed to register a new business reduced. Improving the effectiveness of R&D spending and tightening enforcement of intellectual property rights will boost innovation.

+ Make urbanisation more inclusive. Sufficient resources must be devoted to public transportation and local public services, for them to be provided to all residents. Schooling should be on equal basis for all. Migrants should be allowed to enroll in high schools and take university entrance exams where their parents live. Local quotas for entrance to university should be abolished.

+ Move toward greener growth. Further improvement is needed in energy efficiency and reducing carbon dioxide emissions per unit of GDP, with carbon taxation preferable to emissions trading. Energy conservation should be encouraged, through higher excise duties on gasoline and deregulated prices. Water prices should be raised for end-users, and levies and pollution taxes increased. Standards for motor vehicle emissions and fuel quality should be further tightened.

+ China participates in a broad range of OECD work, alongside other Key Partners Brazil, India, Indonesia and South Africa. The peer review process behind the OECD’s economic surveys is a key OECD contribution to the G20’s Framework for Strong, Sustainable and Balanced Growth.