China could miss its chance to become a high-income economy unless it makes substantial reforms to state enterprises, taxation and welfare systems, the World Bank has warned in a report on the Asian giant's economic prospects to 2030.
The bank's president, Robert Zoellick, delivered the prediction at a conference in Beijing. The report was a joint effort by the bank's researchers and China's top thinktank, the Development Reform Commission, which directly advises China's state council, or cabinet.
The report's title – China 2030: Building a Modern, Harmonious, and Creative High-Income Society – reflects key concerns the Communist party will be promoting at the annual meeting of parliament, the National People's Congress, next week.
It warns that without a significant shake-up China's growth, and therefore its role as a global engine of growth, could stagnate. The country could fail to make the leap from a middle-income to a high-income country, suffering a similar fate to other miracle-growth stories, such as Mexico or Brazil.
"The case for reform is compelling" because China has "reached a turning point in its development path", said Zoellick, adding that the transition to a high-income country would prove challenging, especially given the volatile global environment.
"China has an opportunity to avoid the middle-income trap" and "promote inclusive growth, without further intruding on the environment", Zoellick said.
The Bank calls for China to complete its move to a market economy through a major shift in relations between the government, state enterprises and the private sector. Other targets are the need for more rapid innovation, a focus on "green" growth and tackling environmental problems, and expanded welfare services such as healthcare and education.
The blueprint calls for major fiscal reforms, vital to pay for improved social services, and says there should be better integration between China's structural reforms and the changing international economy.
The most controversial suggestion is likely to be that state enterprises must act more like conventional commercial firms. State firms dominate strategic sectors, such as oil, minerals, power and telecoms. Many analysts believe China's ability to direct state enterprises has helped it contain the impact of global economic crisis. However, their privileged access to bank loans has contaminated the banking sector with bad debt.
Zoellick said if China's per capita income growth stayed on track to reach $16,000 (£10,000) by 2030, the impact would be like adding 15 more South Koreas to the world economy. Currently, annual average income is around $5,000.