China's past model for success cannot guide its future development and a new model is needed, an economic planner with the Academic Committee of National Development and Reform Commission said at a panel discussion on Saturday during the Third Global Think Tank Summit.
"Why is the shift in China's economic development model so difficult? Because it served China's economic rise over the past three decades so well that people got used to it. But it is not going to serve China's development in the next phase," said Zhang Yansheng, secretary general of the Academic Committee.
This model for growth, according to Zhang, was essentially driven by exports and investment, a minority became rich, the coastal regions became prosperous, and the government held the reins of the economy.
"Can this model still be applied over the next three decades when China climbs to a high-income country? I think it is very difficult," he said, adding it is time for China to return to the spirit of reform and opening-up that began in 1978.
He said China's past success was due largely to the country's "low-cost advantage", due to the massive migration of farmers to the cities. This provided cheap labour to fuel the country's industrialization.
"But now we are getting rich, getting old and expensive," he said.
Jin Liqun, chairman of the Supervisory Board of Central Huijin Investment Corporation, also on the panel, echoed Zhang's comments by saying China needed new "wheels" to fuel growth.
"Some people say we just need to fix the old wheels to face the future. But how can the wheels of a cart be the same as the wheels of a train or airplane? We need to reinvent the wheel," Jin said.
He said China's financial system should be reformed to better serve the real economy; the education sector should be upgraded to provide qualified talents for a service-oriented economy; and the monopoly of State-owned Enterprises should be broken up to increase the efficiency of these sectors.
Commenting on China's slowing GDP growth in the past year, Jin said "even if the growth rate drops to 7 or 6 per cent, it should not be a source of worry as long as the quality improves."
Zheng Yongnian, director of the National University of Singapore's East Asian Institute, said the recent bank credit squeeze demonstrates the central government will address the systemic defects in China's financial system.
"China's economy has kidnapped the real economy. What I have seen is a misallocation of credit," Zheng said.
"I don't think it is realistic to expect China's major banks to solve the financing issues of millions of Chinese small firms. Rather, much more small, private financial institutions are needed to serve the small business sector."