BEIJING, PEOPLE’S REPUBLIC OF CHINA – The People’s Republic of China (PRC) requires further in-depth structural reforms to support innovation and technological upgrading in its pursuit of high-income status, Asian Development Bank (ADB) President Takehiko Nakao told participants at a workshop today in Beijing.

More than three decades of successful reforms have transformed the PRC into the second largest economy in the world. Yet, further growth of the country must be driven by productivity increases supported by the market, Mr. Nakao said at a high-level workshop on joint research on the PRC’s 13th Five-Year Plan (2016-2020), conducted by the PRC’s National Development and Reform Commission (NDRC) and ADB. Mr. Nakao also noted the importance of inclusive growth and environmental sustainability as the PRC shifts emphasis from the “quantity” to the “quality” of growth.

The government needs to shift its industrial policy from the current approach in which the government picks the winners, to a market-driven approach in which the government lets the market select the winners,” the ADB President said. “It is also essential to reform state-owned enterprises focusing on transparency and accountability. Policies should encourage private sector investment in innovation through venture capital and public-private partnerships.”

He said the changing international context would add a new challenge to policymakers. “Flexibility is the key to successfully adjust to new environments,” Mr. Nakao added. “This may imply a need for a new monitoring and adjustment mechanism for the implementation of the 13th Five-Year Plan, different from the arrangements made for the earlier Five-Year Plans.”

He said that in its transition to high-income status, the PRC enjoys an important comparative advantage, which is the opportunity to benefit from successful and failed international experiences. He offered ADB’s continued knowledge support to the PRC that will also guide ADB’s future lending operations in the country. ADB will continue to use its loan and grant resources to support PRC’s reform process, he said. ADB is discussing with the PRC authorities new lending modalities, such as results-based loans that may be more effective in addressing the country’s new challenges. A total of $1.52 billion in new loans was approved for the PRC in 2013.

The ADB President was on a three-day visit to the PRC where he participated in the APEC Finance Ministers’ Meeting and met with Minister of Finance Lou Jiwei to discuss how ADB could assist the PRC in implementing the 13th Five-Year Plan. He also met with Deputy Prime Minister Taro Aso of Japan and Deputy Prime Minister Choi Kyung Hwan of the Republic of Korea. He also delivered a lecture at the Peking University Graduate School of Management on the global, regional, and PRC economies, and the country’s future challenges.

ADB was invited by NDRC to support the preparation of the 13th Five-Year Plan. In response, ADB—including its Tokyo-based ADB Institute—has been undertaking joint research with NDRC, along with the PRC’s National Economic Reform Institute, on the major challenges to be addressed under the Plan. The preliminary findings of this research were discussed at the workshop. NDRC’s Vice Chairman Xu Xianping and about 100 representatives from government agencies, think tanks, and international organizations attended the event.

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