Capital market reform crucial for ensuring steady growth

Urbanization and e-commerce measures to help power the next decade of economic momentum in China

No economy matters more to the world than China's. The expectation is that it will become the world's largest economy by 2025, doubling in size to $20 trillion. What happens in China over the next decade will have a greater impact on the world than that of any other country.

Over the past 30 years, the pace of development in China has been astonishing and unprecedented.

China's growth over the next 10 years will likely be slower, but slower does not mean slow. No other large economy can come close to the growth China has.

The Chinese consumer is now the most important in the world, and the nation will soon be the world's largest consumer market. Urban per capita GDP will reach some $10,000 per year within a decade.

The population will also have a better safety net, encouraging them to save a little less and spend a little more.

Three numbers will influence China's growth story over the next 10 years: 221, 7.5 million and 440 billion.

221 is the number of cities that are forecast to have more than 1 million people by 2025. Urbanization will continue to create massive infrastructure and emerging middle-class demand. China has already moved more than 300 million people to its cities, equivalent to shifting almost the entire population of the United States.

7.5 million is the number of students graduating every year. These talented people are tomorrow's wealth creators.

440 billion is the amount in dollars that Chinese consumers will spend online this year, making up the world's largest e-commerce market. And this is expected to reach $1 trillion within five years.

These numbers are good indicators of China's status as a nation with world-class technology, and of the progress made in rebalancing its economy. The fundamentals are great. But what else will help China grow?

There are positive economic reforms designed to support growth. These include:

・ The deregulation of pricing in key areas like utilities and services.

・ The continued growth of the private sector, including the reform of State-owned enterprises and the development of the "mixed ownership model".

・ The acceleration of pension and health insurance reforms.

The National People's Congress made it clear last month that this pace of reform will be kept up. Clearly, this growth has to be managed and funded in a sustainable way.

The nation's leaders have been thoughtful and considered in the way they have sought to liberalize the financial sector. This approach must be continued if sustainable growth is to be secured.

If we step back and think about first principles, then it is clear that financial intermediation－connecting sources of capital with users of capital in a productive and efficient way－is a precondition for optimal growth. And a key component of that is the development of deep and liquid capital markets.

Getting this right is important, and not only for China.

The nation's policymakers have an inherent advantage. They can observe best practices around the world and learn from the mistakes of others.

This allows them to make more informed choices about what will work best for China.

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