China has to make breakthroughs in pushing forward reform since there are still many obstacles, such as vested interested groups, ideological issues, and outdated institutions, said Wu Jinglian, a prominent Chinese economist.

His comment came at a recent high-level forum on the Chinese economy. Wu argued that reform and growth are not contradictory pursuits, because reform will remove difficulties in development, which will result in stable growth. He disagreed that reform has to come at the expense of a high growth rate.

Last November, the Third Plenum of the 18th CPC Central Committee raised a series of reform objectives, including allowing the market to "play a decisive role" in allocating resources. Therefore, how reforms will be carried out has become a centerpiece.

Wu said that China is set to enter a new historic era in launching the reforms, which calls for "the power of the mind to produce social and economic innovation." He warned that three major obstacles – ideology, vested interest groups, and the outdated financial system – still need dealing with.

Obsolete ideology -- a result of following the Soviet mode of production -- still has an influence on the present generation, although it is diminishing, Wu said. He urged reformers to fully understand socialism with Chinese characteristics, and how it differs from former Soviet practice.

Wu warned that reform will touch upon " vested interest groups;" people who have used their power to increase their own interests. These people tend to obstruct reforms because marketization and the rule of law forbid them from profiting in this way. He emphasized that it is "special" vested interest groups that need tackling, "since everyone has a vested interest in reforms."

China's inflexible banking system, which has kept banks alive only by net interest spreads, is coming under pressure as China's newly approved Internet banking companies are offering far higher deposit rates. The embarrassment felt by traditional banks has urged the government to accelerate reform of the entire banking sector, according to Wu.

He said that the central bank is in dilemma about whether or not to issue more currency; or in other words, about whether China is more prepared to see real estate bubbles or a recession. But either way, this year will be difficult, he said.

Go to Forum >>0 Comment(s)