OECD points out that in achieving these aims, reforms need to be both "concurrent and carefully sequenced'' and cautions that preferential development of individual sectors to "lead'' the overall economy is likely to have much lower pay-offs and pose greater risks of negative outcomes. The key to achieving the triple goals which the study identifies as needed to break through the vicious circles now impeding reforms and establish the pre-conditions for sustained progress in the future include, among others — restore solvency to the financial system; bolster market-based mechanisms as the dominant force for restructuring of the business sector and establish public finances on a sound and sustainable basis.

In Chinese agriculture, market forces have largely replaced Government plans and targets. And with the important exception of grains, the Government's intervention in the production, pricing and marketing of agricultural products is now limited. The changing role of agriculture within the rural economy has provided a second major source of China's growth and development. Local Governments were encouraged to foster the growth of rural non-agricultural enterprises (REs). But Chinese REs in recent years suffer from financial problems and operating inefficiencies nearly as severe as those afflicting the state-owned sector.

The OECD study reckons that as in agriculture, the dynamism to industry imparted by structural shifts seems to be attenuating. Industry financial performance has deteriorated sharply since the early 1990s. Profits fell to nearly zero in 1998, with more than one-third of enterprises making losses and despite noticeable improvement during 1999-2001, financial performance remains weak in many sectors.

The poor industry performance can be traced to the accumulation of `policy burdens' arising from the long-standing use of enterprises to accomplish social policy goals. The biggest problem is widespread inefficiency in enterprise operations. China's industry is characterised by widespread sub-optimal scale in production facilities, fragmentation and duplication.

OECD further states that there are 200 separate producers of automobiles, most of which complete only a few thousand units per year. Economies of scope are also poorly exploited as illustrated by the nearly 8,000 independent cement firms in China, compared to 110 in the US, 51 in Russia, 58 in Brazil and 106 in India.

The study says said weak financial discipline, which has effectively presented firms and their government backers with a zero cost of capital, has been a major impetus to the development of unproductive and redundant capacity. China devotes proportionately fewer resources and produces less scientific outputs such as patents, than OECD countries, as well as other large developing countries such as India.

For India, the OECD study on China is apparently an eye-opener provided the authorities take the cue and rescue the reform process from disarray and put it in proper sequence so that our competitive strengths and comparative advantages are duly exploited to ensure higher growth over the long haul.

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