Paris -- With the help of massive government stimulus spending, China is now leading the world economy out of recession, according to an OECD report issued 1 Feb. Already the world's second largest economy, China could well overtake the US to become the leading producer of manufactured goods in the next five to seven years, the OECD says.
The OECD's Economic Survey of China says it will be important to ensure that government saving, now falling in the wake of the crisis, does not revert to its previous, excessively high levels. And it calls for higher public spending on "much needed social reforms in areas such as education, welfare assistance, pensions and health."
China can afford the extra spending as its public finances remain strong, says the European economics group. Government debt in China was only 21 percent of GDP in 2008. Its stimulus measures, which nevertheless dwarfed those of other countries, are expected to increase this debt ratio by only 3 percent of GDP in 2010. Gross public debt in OECD countries is, in contrast, projected to almost reach their total GDP this year and even exceed it in 2011.
"The Chinese government's swift and vigorous action to support its economy has contained the impact of the global recession," said OECD chief economist and deputy secretary general Pier Carlo Padoan, at the launch of the survey in Beijing.
He also noted that in helping rebalance China's economy towards stronger domestic demand, the stimulus is also benefitting the rest of the world. But he emphasised the need to step up social spending "to foster social cohesion domestically and to promote continued external rebalancing."
Specifically, Padoan listed:
* Unifying the fragmented system of welfare assistance, pension and health care.
* Better access to social care for migrant workers
* Health care reforms for better provision at a local level, to run hospitals more efficiently and to merge the different insurance systems.
The OECD also claims that competition and productivity can be boosted by cutting red tape, loosening old ties between state-owned enterprises and central authorities, allowing private companies to operate in the network industries and lowering barriers to foreign direct investment in services.