Chinese banker opposes system

THE World Bank's Chinese chief economist, Professor Justin Lin, has called on his home country to dismantle a system of "administrative monopolies" that is gouging profits at the expense of the poor.

Professor Lin, who became the first senior Chinese appointment to a big global economic institution in February, said the system channelled cheap capital, natural resources and opportunities to the wealthy state sector at the expense of more dynamic private enterprises in the rural and services sectors.

"Providing subsidies to the rich by extracting from the poor will lead to a worsening of income and wealth distribution," he wrote in a chapter of China's Dilemma, a book that will accompany today's China Update conference at the Australian National University.

He says these wealth transfers to the rich "will inevitably lead to social instability".

The job of chief economist is the World Bank's second-highest post and has been occupied by the British economist Nicholas Stern, the Nobel laureate Joseph Stiglitz and the former US treasury secretary Lawrence Summers.

In China Professor Lin is known for pushing "sensitive" political-economic subjects into the academic arena and for contributing to transparent, pro-market policy-making as head of Peking University's China Centre for Economic Research.

He has helped to shape Chinese agricultural reforms, including the abolition of punitive taxes that had been in place in some form for thousands of years.

Professor Lin's paper, "Rebalancing equity and efficiency for sustained growth", hints at a new

policy direction for China after the Olympics in Beijing next month.

It says greater equity and efficiency should be achieved through "primary distribution" - a concept that was floated but not explained in President Hu Jintao's five-yearly report to the Communist Party congress in October.

"The Chinese Government should focus on cancelling administrative monopolies and should begin strengthening supervision of monopolistic industries into which competition cannot be introduced," Professor Lin writes. "Income differences between urban and rural regions will decline once a complete market system is fully in place."

Professor Lin says China should be judged on its institutions. "The relative backwardness of a developing country is not represented only by its level of economic development; it is judged against the level of development of its institutions, particularly its legal and financial institutions."

He also criticises China's system of resources extraction, including negligible resource rent taxes, which he says benefit wealthy state-owned companies and corrupt local officials at the expense of the public.