Lagarde Points to Next Steps in China’s Transformation

Modern service sector would boost jobs, income, and living standards

Robust, integrated financial system increases growth, improves welfare

Promote inclusive growth and green policies to make growth sustainable

Addressing an audience at the China Development Forum in the capital, Beijing, Christine Lagarde said despite the enormous progress made by China in recent years, the country now confronted what she described as “serious obstacles” to its “next transformation”.

“The challenge is clear: to make growth more inclusive, friendlier to the environment, and more sustainable,” said Lagarde, who was speaking during her three day visit to the country.

The three “steps” highlighted by the IMF head: firstly, an unleashing of the services sector, secondly, the building of a modern, globally integrated financial sector, and lastly, the promotion of inclusive growth, combined with green policies, are included in the reform blueprint announced at China’s Third Plenum last November.

Unlocking the potential of the service sector

China’s economic takeoff over the last two decades has been powered by manufacturing, but the next round of reforms must increase the role of the service sector, she said.

“This will not only unlock the substantial growth potential in that sector, but also boost employment, consumption, and living standards,” she added.

Despite being first in the world in “creative exports”—exports based on exclusive trademark registrations in China—Lagarde said productivity and innovation could only flourish with modern education, advanced health [care], and integrated financial systems.

“So the barriers to entry in these key areas need to be reduced, so that innovation can keep China at the leading edge of economic progress,” said the IMF chief.

A stronger, more competitive financial sector

Lagarde also identified China’s financial sector as a potential source of higher-quality growth and improved welfare. But this sector had to be opened to greater competition and knowledge-transfer, in tandem with stronger macroeconomic policy frameworks, and better regulation and supervision.

The IMF head said a gradual...