ADB confident in China economy, eyes green development

A long-term approach to sustainable urban transport along with creation of low-carbon public transport systems are needed, including user-friendly cycling and pedestrian facilities, which offer a more sustainable alternative to private cars, he said.

Nakao stressed that stricter monitoring and enforcement of emission limits is also needed in heat and power generation, industry and the construction sector, along with programs to replace high-emission plants with low-emission facilities.

Over the longer term, China needs to expand its institutional capacity for controlling air pollution and to strengthen its environmental compliance and enforcement regime, said Nakao. He added that transportation pricing needs to be adjusted to fully incorporate the costs of pollution and congestion with measures such as introducing congestion pricing, drawing on lessons from cities such as Singapore.

Transparency key to control local government debt risk

As the former Minister of Finance of Japan, Nakao also noted China's latest move in fiscal reform.

Nakao said China's local governments need a large amount of financial input to meet the demands of urbanization, which brings new risks of rising local government debts and overzealous land sales.

"To keep the local government debt under control is very important," said Nakao, noting that the Chinese government should improve the transparency of local debts and set up a taxation system for local governments to create more fiscal space for local governments.

Apart from improved efficiency of tax administration and better use of property taxes, emphasis should be put on direct taxes, such as the personal income tax, said Nakao.

Consideration should also be given to strengthening the policy, legal, regulatory, and institutional environment for public-private partnerships to help local governments attract infrastructure investments, he added.

Commenting on the ongoing reforms in China, Nakao said it would be a comprehensive and well-balanced reform, with some effective experiments, such as liberalizing the interest rate of lending.

Nakao suggested that China should make the market play a decisive role in allocating resources, while the government should play a role in service, policy-making and guidance to the market.

"When you find the right direction to launch the reform, it is more important to have it well implemented," said Nakao.