BEIJING, Dec 13: The Chinese government will have to adopt a more hands-off approach to its economy as it enters an era characterized by fast technological change, a senior World Bank official said on Thursday.

China has no other choice if it is to avoid losing out to other countries, or else see itself divided into areas able to benefit from the information revolution and those that are not, the World Bank said in a report on China and the knowledge economy.

“Now, when there is a tremendous need to have very rapid responsiveness to rapidly changing conditions, you need to have a more automatic self-adjusting system,” Carl Dahlman, co-author of the report, said at a press conference in Beijing.

“So the role of government has to change from the one before, that was doing a lot more in production and controlling and trying to plan, to one where you have a system where this happens automatically,” he said.

He said the World Bank had had “fruitful discussions” with senior Chinese policy-makers, who recognized the need to change the economy into one relying less on micro-management by officials.

China has benefited from its cheap labour in the past two decades of reform, and is still the world’s fastest growing major economy.

This year, Chinese planners expect economic growth to hit 7.4 per cent, down just marginally from 8 per cent last year, despite the global slump.

But the World Bank warned China needs to look for new ways to fuel growth in the years ahead, especially given the fresh challenges this week’s World Trade Organization entry will bring.

Some of the measures China must undertake will not come cheap, such as increased spending to improve telephone penetration, computer use and Internet access, according to the World Bank.

“China has made very big strides here, but it needs to do quite a bit more to catch up with the rest of the world,” Dahlman said.

China says it is the world’s largest mobile market, with 136 million cellphone users at the end of October, on top of 174.6 million fixed-line users.

While some observers question the precise figures, they agree China is probably at least the number two cellphone market in the world, after the United States, and fast approaching first place.

One reason China is facing serious problems in harnessing the knowledge economy is the country accounts for less than 0.7 per cent of global expenditure on research and development.

China can try to make up for this by tapping into overseas know-how by attracting more foreign investment and increase technology transfers, the World Bank said.

It could also do more to stem the brain drain, which has seen only 120,000 of a total of 330,000 Chinese students return from foreign universities.

“That’s tremendous knowledge and expertise that can be marshalled for needs in China,” Dahlman said.

China has also been too focused on the development of pockets of cutting-edge high-technology and too little on diffusing existing knowledge, according to the World Bank.

“There are some sectors and some firms that are very close to world leaders, but you have a tremendous amount that are still many years behind,” Dahlman said.

“So it’s very important to improve average productivity to get more internal dissemination of knowledge.”

One solution is to create more institutions such as research centers on agriculture and engineering that can spread know-how to companies throughout the country, according to the bank.—AFP