World Bank Cautions China About Looming Crisis

STEVE INSKEEP, HOST:

Let's try to get a glimpse of the future here. No country has grown so quickly for so long as China. But a report out today from the World Bank - and a Chinese government think tank - says China must change the way it runs its economy or risk a financial crisis in the future.

NPR's Frank Langfitt reports from Shanghai.

FRANK LANGFITT, BYLINE: China built itself into the world's second-largest economy by allowing market competition, but still funding and favoring its state-owned companies.

The World Bank says if China wants to stay on track, this has to end.

Alistair Thornton is China economist for IHS Global Insight in Beijing.

ALISTAIR THORNTON: They really need to totally change the growth model and focus, not on just mobilizing capital and throwing money at the problem, but actually allocating those resources efficiently.

LANGFITT: In theory: great idea. In practice: very tough. Thornton explains why.

THORNTON: There's huge amounts of vested interests in China. It's pretty safe to say that anyone that benefits from how things are today will be pushing back against reforms and that large very powerful state-owned enterprises and that's various ministries which derive their powerbases from managing this economy.

LANGFITT: Gary Liu says changing the economy will fall to China's incoming leadership. Liu is an economist at the China Europe International Business School in Shanghai.

GARY LIU: If they really want to make some progress in reform, I think that a strong leadership is a really a must, but we don't know what will happen, so let's pray.

LANGFITT: That's correct: he said pray. And with China on its way to becoming the world's largest economy, it's important the country's leaders get it right.

Frank Langfitt, NPR News, Shanghai. Transcript provided by NPR, Copyright NPR.