Foundations for Growth and Competitiveness 2026

China

Chinese GDP per capita has been rapidly catching up, but there is still some way to reach the level of the most advanced countries. China’s population is ageing. With the working-age population falling for more than a decade, growth has been driven by capital accumulation and increasingly by total factor productivity. However, despite very high investment rates, the capital stock is still modest in per capita terms. The unemployment rate is low, but only refers to urban areas, while in the countryside there remains significant underemployment.

Structural reforms could lift the growth potential and ensure a gradual slowing of growth as China is converging to the most advanced countries over the medium- to long term, mitigating the impact of unfavourable demographics. Abolishing administrative monopolies, providing equal chances for private enterprises and further tackling corruption would help to improve the allocation of resources and boost productivity. Reforms to strengthen the social safety net would help reduce the savings rate and achieve a more balanced growth model.

Economic performance

Gaps to the average of the upper half of the OECD countries

Source: Panels A and D: OECD, Economic Outlook database; Panel B: National Bureau of Statistics China and OECD calculations; Panel C: OECD, Economic Outlook and Productivity databases.

Selected policy gaps

Source: OECD calculations based on the Foundations for Growth and Competitiveness database.

Competition: Abolish administrative monopolies

Administrative monopolies, i.e. exclusive rights granted by a government document for businesses to deliver certain goods or services, limit competition in product markets, in particular in services industries. It is a common form of local protectionism, whereby producers or service providers from outside the local area are excluded from local markets, thereby inhibiting the creation of a single market.

Recommendations

✓ Abolish administrative monopolies to facilitate the creation of a single domestic market.

✓ Apply the Fair Competition Review Mechanism effectively and strengthen the training of personnel countrywide to prevent the formation of new administrative monopolies.

✓ Recognise firm registration countrywide and enforce the prohibition of the requirement to register locally in order to have access to local markets.

Business Environment: Provide equal chances for private enterprises

Having emerged over the past four decades, private enterprises now account for 60% of China’s GDP, two-thirds of investment, 70% of technological innovation, and 80% of employment. However, due to their smaller scale and legacy issues, the potential of private enterprises is not fully developed. They often face arbitrary rules and are subject to illicit fees. To survive, they engage in cut-throat competition with each other, often cutting corners in adherence to environmental and labour standards.

Recommendations

✓ Provide a level playing field in regulatory treatment of private enterprises in line with the OECD Recommendation on Competitive Neutrality and strengthen the governance of state-owned enterprises by aligning with the OECD Guidelines on Corporate Governance of State-Owned Enterprises.

✓ Abolish illicit fees and charges and streamline the administrative burden on enterprises.

✓ Take measures to support market access of private firms, for instance, in public procurement, by a compulsory splitting up of contracts into smaller chunks so that the private sector has a chance to tender.

Social security: Strengthen the social safety net

Precautionary savings remain high due to relatively weak social protection, thus reducing the consumption potential and economic growth. The whole population is effectively covered by health insurance and the reimbursement rate is comparable to other countries, but only a limited list of treatments and medicines is reimbursed. Pension coverage is also high, but the system is segmented, with rural pensions not sufficient for survival, necessitating savings for old age. Many doctors prefer leaving the profession instead of taking up a job in the countryside.

Recommendations

✓ Expand the list of treatments and medicines to provide coverage for all illnesses.

✓ Reform the pension system so that a minimum monthly pension is guaranteed to all by raising contributions to make it sustainable.

✓ Rotate doctors on a temporary basis to curb the exodus from the profession.

Corruption: Enhance transparency for better detection

Corruption imposes hefty transaction costs economy wide. Despite harsh sanctions, including the possibility of capital punishment, corruption is widespread. This is supported by a lack of accountability of managers in government agencies and public enterprises and transparency of transactions. Whistleblowers are not sufficiently protected, and investigation is not done by independent investigators.

Recommendations

✓ Fortify whistle-blower protection to encourage insiders to report unlawful conduct.

✓ Strengthen the governance of public agencies and enterprises with strong checks and balances, and oversight.

✓ Enhance transparency and accountability and reduce the concentration of power in managers’ hands.

Education: Achieve a minimum standard of quality country-wide

The quality of public services such as education varies widely across the country and so do funds available for education. The highest-quality resources are concentrated in the largest cities. The best teachers seek jobs in the best schools in large cities and, while there is a rotation system requiring them to teach in nearby villages, it is limited to the immediate vicinity of the cities.

Recommendations

✓ Shift the financing of locally-delivered compulsory education services to the central level.

✓ Guarantee a minimum standard of services countrywide including by ensuring that teachers’ salaries are paid from the central budget.

✓ Rotate teachers to more remote areas as part of their career and as a condition for progression.

Recent progress on structural reforms

China has undertaken reforms in many areas, but key challenges remain to be fully addressed. The extension of the pensionable age from this year is only by three months a year and, even after the 15-year implementation, people will retire much earlier than in other countries. Many administrative monopolies are being abolished, though new ones are emerging. Illicit fees and regulations burdening the private sector are being reduced. Childcare has been made free and some localities provide child subsidies.