www.oecd.org/eco/surveys/economic-survey-china.htm

OECDOECD Economics

2017 OECD ECONOMIC SURVEY OF CHINA

More resilient and inclusive growth

Beijing, 21 March 2017

2

• Growth has slowed somewhat but remains strong.• China will remain the major driver of global growth.• Financial risks from high corporate debt are rising and

need to be addressed urgently.• Innovation and entrepreneurship should contribute more

to productivity growth.• Streamlining the social assistance system and the

distribution of resources in education and health would enhance inclusiveness.

Main messages

3Source: OECD Economic Outlook Database.

Real GDP growth

China remains the major driver of global growth

4

Investment is slowing

Source: National Bureau of Statistics.

5

Rebalancing from industry to services is underway

Source: National Bureau of Statistics.

Share of industry and services in GDP

6

The saving rate is still very high

Source: National Bureau of Statistics.

Saving rate of households and non-financial enterprises, % of GNI

7

The poverty rate has declined dramatically

Source: National Bureau of Statistics.

Rural poverty rate

8

Income inequality has declined due to strong income growth in the middle of the distribution

Source: National Bureau of Statistics.

Gini coefficient

9

The poorest are falling further behind in rural areas

Source: National Bureau of Statistics.

Disposable income of the top 20% over that of the bottom 20% of the income distribution

10

Boosting firm dynamism

11

Barriers to entrepreneurship have fallen

Note: The value of the indicator ranges from 0 to 6, with 6 being the most restrictive.Source: OECD Product Market Regulation database and authors’ calculation.

Barriers to entrepreneurship, PMR indicator, 2013 and 2016

12

Bankruptcies are very rare

Source: State Administration of Industry and Commerce.

The share of firms exiting through bankruptcy in total exits

• Accelerate the bankruptcy process to reduce uncertainty and compensate the laid-off in accordance with relevant laws.

13

Insolvency procedures can be improved

Source: World Bank Doing Business 2017 database.

14

R&D spending is high

Note: Latest year available.Source: OECD MSTI database.

R&D spending as a share of GDP

15

Public funds for innovation are concentrated

Source: National Bureau of Statistics.

Share of government support for innovation in the total, 2015

• Spread government support for innovation across more sectors.

16

Patent use varies across provinces

Share of effective patents used in production and put on the market and number of patents, 2014

Source: State Intellectual Property Office.

17

The number of listed firms is on the rise

Source: CSRC.

18

Corporate governance needs to be improved

Source: China Stock Market & Accounting Research database.

Percentage of firms with more independent directors than required by law

• Strengthen the independence and decision-making role of the board by hiring truly independent directors.

19

Ownership concentration declined somewhat

Source: CSRC.

20

Most enterprise debt is from SOEs

Source: Bank of International Settlements and Ministry of Finance.

Enterprise debt over GDP

• Gradually remove implicit guarantees to SOEs and other public entities.

21

Key recommendations to increase the quality and resilience of growth

• Require the regular publication of company accounts and enhance disclosure standards for all firms. Raise penalties for individuals committing fraud.

• Spread government support for innovation across more sectors. • Strengthen intellectual property right protection by more

systematically prosecuting violators and raising fines.

• Gradually remove implicit guarantees to SOEs and other public entities. • Professionalise the management of SOEs to make a clear division

between business and politics. • Strengthen the independence and decision-making role of the board by

hiring truly independent directors.

• Accelerate the bankruptcy process to reduce uncertainty and compensate the laid-off in accordance with relevant laws.

22

Addressing financial risks

23

Mortgage lending soared

Source: People’s Bank of China.

Growth of the stock of mortgage loans outstanding, y-o-y

• Enhance prudential regulation by requiring lenders to take into account borrowers’ repayment ability when extending loans.

24

Housing prices have surged

Source: National Bureau of Statistics.

Growth of housing prices by city tier, y-o-y

25

Enterprises are heavily indebted

Source: Bank of International Settlements.

Enterprise debt as a share of GDP

26

NPLs are rising

Source: China Banking Regulatory Commission.

Share of problem loans in total

27

Key recommendations to address financial risks

• Conduct a prudent fiscal policy. Channel funds to where returns are high such as education, health and social security and avoid misallocation of capital by allowing banks to better price risks.

• Improve the quality, coverage and timeliness of fiscal reporting.

• Enhance prudential regulation by requiring lenders to take into account borrowers’ repayment ability when extending loans.

• Restrict leveraged investment in asset markets.

28

Providing opportunities to all

29

The tax and transfer system does little for redistribution

Reduction in market income inequality due to taxes and transfers

Source: Standardised World Income Inequality Database (SWIID) Version 5.1.

• Broaden the personal income tax base and increase tax progressivity.

30

Sub-national governments have too little own revenue

Source: Ministry of Finance.

Shares of revenues and spending in total by government level, 2015

• Increase central and provincial government social assistance transfers to poorer areas.

31

Student performance is highly influenced by socioeconomic factors

Impact on PISA score of a one unit increase in economic, social and cultural status, 2015

Note: This is based on the PISA index of economic, social and cultural status. Source: OECD.

• Increase public funding for childcare and introduce incentives to encourage the participation of migrant children and those in rural areas in early childhood education.

32

Healthcare is less available in rural areas

Ratio of health professionals per resident between urban and rural areas, 2015

Source: National Bureau of Statistics.

• Raise doctor salaries by allowing doctors to provide fee-based medical services in public hospitals outside of their standard work.

33

The Meals in Schools Programme

Digitalisation of the Meals in Schools Programme

Source: China Development Research Foundation, National Bureau of Statistics.

Note: The government plan to provide free school meals for students in poverty-stricken areas has been enhanced in some locations by a China Development Research Foundation initiative using mobile phone technology to share and monitor the programme.

34

The retirement age is low

Source: OECD (2016), Pensions at a Glance.

Normal pension age, 2015

• Gradually increase and unify the pension age to 65 and then index it to life expectancy.

35

Key recommendations for sharing the benefits of growth by providing opportunities to all

• Gradually increase and unify the pension age to 65 and then index it to life expectancy.

• Improve administrative procedures to make it easier to draw a pension in a different location from where it is earned.

• Increase public funding for childcare and introduce incentives to encourage the participation of migrant children and those in rural areas in early childhood education.

• Raise doctor salaries by allowing doctors to provide fee-based medical services in public hospitals outside of their standard work.

• Base social security contributions on actual income earned. • Increase central and provincial government social assistance transfers to

poorer areas. • Broaden the personal income tax base and increase tax progressivity.• Implement a broad-based nationwide recurrent property tax and consider

an inheritance tax that would include some basic inheritance allowance.

36

Environmental taxation is low

Environmental taxes as a percentage of GDP, 2014

Source: OECD Environmental Policy database.

• Effectively implement the December 2016 Environmental Protection Tax Law, stepping up enforcement efforts and raising environmental taxes.

37

Key recommendations to make growth greener

• Effectively implement the December 2016 Environmental Protection Tax Law, stepping up enforcement efforts and raising environmental taxes.

• Allow independent renewable generators to sell surplus energy and link renewable capacity expansion with the extension of the local power grid.

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More information…

www.oecd.org/eco/surveys/economic-survey-china.htm

OECD

OECD Economics

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