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But government-backed companies still control industries from oil to steel to telecoms and receive the bulk of loans from banks, most of which are state-owned too. The World Bank and a Cabinet think tank, in a high-profile report, called for far-reaching reforms to promote free-market competition and reduce the dominance of these state-owned national champions. The report
-- issued just ahead of the legislative session -- seemed timed to influence the agenda for the impending leadership transition and landed in the midst of a debate among Chinese scholars and media about the need for reform. "China's economy has reached its limits under this outdated model of development," the prominent business magazine Caixin said in an editorial this month. "Whether or not the country can engineer a new path of growth and avoid the middle-income trap will depend on its determination to transform itself." Premier Wen Jiabao, the top economic official, repeated promises of change in a nationally televised speech at the opening of the largely ceremonial National People's Congress. Wen and other leaders pledged tax cuts for businesses and more social spending. Wen gave no commitments, though, to basic changes many say are critical to any transformation. High on that list is restructuring the banking system so that households no longer receive low government-set deposit rates, in effect subsidizing cheap loans to state companies. "Wen's report was very disappointing, very short on policies that will be adopted to achieve the rebalancing goals," said Nicholas R. Lardy, a researcher at the Peterson Institute for International Economics in Washington, in an email. Beijing should find it easier than debt-burdened European countries to carry out reforms because economic growth is still strong, analysts say. The rapid expansion has eased as Beijing tightened lending and imposed investment curbs to cool overheating, but the government set a 7.5 percent growth target for this year. The World Bank compared the scale of change required to China's radical overhaul of state industry in the late 1990s, which wiped out millions of jobs but set the stage for a decade of rapid growth. The changes in the 1990s were aimed at making state industry, one segment of the economy, competitive and profitable, while the latest reform proposals are aimed at making the overall economy more efficient, which their advocates say requires scaling back the dominance of those government companies. The commerce minister, Chen Deming, said last week that the World Bank recommendations "could be incorporated into a master plan." But he made clear the political limits to diminishing Beijing's role in the economy. "China's basic economic system in which public ownership is dominant is unshakable," he told reporters. "This is written into the supreme law, the constitution."
[Associated
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