Extraordinary achievement driven by policy change

    China's extraordinary economic performance has been driven by changes in government economic policy that have progressively given greater rein to market forces, said OECD in its first Economic Survey on China.

    The transformation started in the agricultural sector more than two decades ago and was extended progressively to industry and large parts of the service sector, so that price regulation was essentially dismantled by 2000, the OECD survey said.

    The business environment was further sharpened by allowing foreign direct investment in the country, reducing tariffs, abolishing the state export trading monopoly and ending multiple exchange rates, it said.

    "The government has also introduced wide ranging reforms into the state-owned sector that dominated the economy in the early 1990s," it said.

    "State-owned enterprises have been transformed into corporations with a formal legal business structure and many have been listed on stock exchanges that were created in the early 1990s," it said.

    China launched a program to give all children nine years' education, and in the five year period to 2003, the number of students enjoying higher education has risen by 3.5 times, according to the survey.

    As a result of these policy initiatives, the average quality ofthe labor force has been improving significantly, it said.

    "Indeed, the changes in government policies have created a largely market-oriented economy in which the private sector plays a key role."

    Between 1998 and 2003, the progressive evolution in government policies allowed a fivefold rise in the output of domestic privatecompanies, which also managed to quintuple its exports during the period, according to the survey.

    "With the decision in 2005 to allow private enterprises to establish businesses in many previously restricted areas, further improvement in multifactor productivity may be possible."

    Private sector drives growth

    China's private sector is driving the nation's growth and can be strengthened further, said the report released by OECD.

    The scope of private ownership has become substantial in China, producing well over half of the gross domestic product and an overwhelming share of exports, said the report.

    Private companies generate most new jobs and are improving the productivity and profitability of the whole economy, according to the report.

    The Chinese government has restructured the stat-owned business sector, resulting in a massive loss of jobs. A large part of the state sector remains to be restructured, with policies to facilitate this process being identified and expanded.

    According to the report, the performance of the private sector could be strengthened more through a further modernization of the business framework and better enforcement of laws in the economic sphere, especially those for intellectual property rights.

    The growing importance of the private sector in supporting the economy makes it all the more important to further modernize the legal framework for business, said the report. Enditem