China's growth, in recent times, has been phenomenal. However, to sustain its growth, especially in the aftermath of its accession to WTO, the country needs to address certain structural issues.

The popular perception is that China is a phenomenally successful economy which will continue to grow. However, there are structural issues in its economy that must be addressed in order to ascertain whether its growth is sustainable, e.g., a rising urban unemployment rate, large portfolios of non-performing loans held by state-owned banks and the restructuring of inefficient state-owned enterprises, to name a few. China's growth prospects will depend on the extent to which trade liberalization proceeds, the effects of introducing degrees of financial liberalization, and the management of large-scale reforms of the state sector, including whether privatization or corporatization will be undertaken. Issues of unemployment, social securities provision and legal reforms are also essential concerns. The progress and nature of market-oriented reforms in an economy increasingly open to global factors will also play an important role in its growth prospects.

From 1980 to 1989, China's GDP grew at an average annual rate of 10.2%, while the average for the world's economies over the same period was 3.2%. During the period 1990-1997, China's GDP growth rate was 11.6%, as compared with the average world rate of 2.4%. As a further basis of comparison, the US experienced GDP growth of 3.0%. From 1998-2000, which was a period of economic turmoil, the rate of growth remained 9% on an average. The recent and projected rates of growth for the next few years are of that magnitude, around 7 to 8%.

We turn to examine the main drivers of China's recent economic performance. The first is domestic aggregate consumption. Since the reforms in urban areas began in the mid-1980s, domestic demand has quickly risen to comprise an engine of economic growth. Retail sales in 2001 grew 10.1% on account of increasing incomes. Much of the increase in domestic consumption has taken place in urban areas, as real wages have risen in the urban labor market even while employment in the state-owned sector has been characterized by layoffs.

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