Brian Klein says:Without significant reform China’s best days may be behind it as growth slows and opportunity stagnates. Five areas of low-hanging fruit would have a significant near-term impact.
1. Ending the hukou system – What’s old continues to be new as residency permits (dating back to Imperial times) restrict individual rights beyond their hometowns. When convenient, limitations on work are ignored for migrants in factories or on construction sites, but their children can’t attend school, they have no rights to medical care and they can’t buy property. Ending this antiquated system would be a boon for low-end real estate development and reduce costs for companies that currently maintain worker’s dormitories. It would also significantly improve the future workforce with guaranteed education for all in a country struggling with an aging population.
2. Opening the financial sector – Ever since China joined the WTO there were promises of market opening that have never materialized. Western firms have generally limped along hoping one day opportunity would arrive. That day has never come. The end result: a state-dominated sector that starves much of the private sector of needed investment and non-market saving rates. Free up both and a strong consumer class follows. When foreign firms can compete openly for deposits, access money at the same preferential rates as their state-owned counterparts, and offer the full range of banking services in the mainland as they can in Hong Kong times will indeed be changing.