If further deepening of reform through liberalisation, deregulation and decentralization takes place, private investment will boom as well, given China’s huge domestic market potential, and growth is likely to be even stronger. China is in a process of rapid industrialisation and urbanisation. This process will continue until the economy is industrialised, though there will be some noise in the process. There is no need to worry about China’s growth, but there is need to worry about the quality of growth.

High quality growth can only be achieved in a well-functioning market. Yet, China’s market economic system is far from perfect and the reforms need to be substantially deepened. For instance, a priority is to get rid of the practical barriers for private investment entering into the monopolistic sectors, mainly in services.  Now is an opportune time to push further with much needed market-oriented reforms sufficient to ensure China’s high growth in the future. A significant reform that will have a long-run effect on China’s economic growth is the reform package on rural economy released last month at the 3th plenary of 17th Central Committee of CPC. It will facilitate China’s urbanisation and the transformation of China’s traditional agriculture into commercised modern agriculture.

Because of the financial crisis, China’s economic growth will indeed slow down but it will continue to be high enough not to cause significant problems in China. China will likely be an exception during world recession, maintaining high growth, as it did after East Asian Financial crisis in 1997. The difference between the 1997 East Asian crisis and now is that China needs to stimulate growth more through reforms, not just rely on government expenditure. If the private investors are able to freely access the investment in freeways, high speed railways and infrastructure, then it will be a strong driving force for growth. But this can only be achieved through deepening reform.

In the wake of financial crisis, the case for government intervention has again become pervasive worldwide. The lesson from the financial crisis is not the failure of the market as some people suggest, but the failure of government regulation. The crisis is a punishment of market for bad regulation. The solution is to further strengthen market mechanisms, rather than to be suspicious of the market and to embrace the Keynesim and government intervention. It is critically important that all countries should have firm belief in the market economy as it heads towards exit from the crisis.