China moving up to the next level

In banking, increased competition and the introduction of the private sector will release the vast innovative energies of China's entrepreneurs by providing them with capital and bringing market-led and innovative solutions to China's huge banking market.

Telecommunications will see a similar effect. Chinese people and businesses will benefit from better, more innovative and diverse services. China's communications will become faster and more efficient. Both these sectors are large and vital parts of China's economy.

The impact of the government's changes will spread and will spur economic growth. The economic reforms ushered in between 1970 and 2000 in the United States, the United Kingdom and other developed countries demonstrated very clearly that free market competition plays a vital role in increasing economic efficiency and growth.

The 2008 crash in the US showed the importance of maintaining a strong and fair system of rules within which companies in key sectors such as banking can operate and compete.

The new government took office only a year ago, but the reforms introduced so far will have important medium- and long-term effects on China. The message from the government to China's State-owned enterprises is that market-based competition is on the way. They will have to become more efficient and generate products and services that can compete at attractive prices.

History shows that the long-term impact of these kinds of fundamental economic changes is very strong, because the multiplier, or second- and third-round effects are large and long-lasting. China has started to change - again, and much for the better.

The impact of more competition in key sectors will take a year or two to feed through into stronger growth and greater choice but, by mid-2015, Chinese people will start to see the first dividends, in more and better-priced services feeding into stronger and more resilient growth, with large and medium-sized enterprises starting to play a more central economic role.

Some State firms will succeed in this new competitive world. Others may need to change fundamentally to redefine themselves and their products. The winner overall will be China and, indirectly, all the countries with whom China trades - in other words, the whole world.

China's size means that the inefficiencies and inconsistencies which Fallows describes in China Airborne will continue to exist for some time to come. But the new vigor of China's economy, arising from the deep market-based reforms now being carried out, will quickly spread. These effects will reinforce further reforms, creating a virtuous cycle of change.

The author is a visiting professor at Guanghua School of Management, Peking University. The views do not necessarily reflect those of China Daily.

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