World Bank Study Stresses Reform

China has "a good chance" of reaching a relatively comfortable living standard measured by an $800-per-capita national income by the year 2,000, according to a World Bank study issued yesterday.

But it will be a "hard and difficult" task, the study said, requiring the nation not only to keep its population growth under control, but also to balance its effort to reform its system of economic management with its determination to maintain a socialist system of government.

In any event, the report implies that whether or not the precise $800-per-capita target is hit by the end of this century, China over the next two decades will be transformed from a low-income to a middle-income country of greater power and significance in world affairs.

How far into the middle-income bracket China actually will move depends "crucially on how successfully the economy is managed," the report said.

Public utilities, mineral exploitation and defense-related industries should remain under state control, the authors said.

But there are advantages and disadvantages in methods to motivate other state enterprises, the report said. It pointed out that experience in Yugoslavia shows the weaknesses of giving control to workers, and commented more favorably on an alternative approach -- now being tried in Hungary -- of giving basic decision-making authority to a board of directors representing society at large, including workers.

The report, based on findings by a mission headed by Edwin Lim and Adrian Wood, was launched after a visit to China by World Bank President A. W. Clausen in 1983, when Deng Xiaoping asked the bank's help in boosting per capita income from the $300 level in 1980 and eliminating the worst forms of poverty.

The authors point out in the 183-page volume that to go from $300 to $800 per capita in 20 years (a growth rate of about 5 percent a year) would be a feat almost unparalleled in history.

"More generally, only one country -- Japan -- has indisputably caught up with the developed nations from a position of economic backwardness," they said. Moreover, per capita income in the richer nations is already 10 times higher than in China, and is likely to increase around 2.5 percent a year in the future.

On the other hand, China has had a record of strong progress in recent years. From 1979 to 1984, per capita growth has been at a 6.8 percent rate, and even in the 1952-82 period, marked by rapid population growth "and periods of acute mismanagement," the economic growth rate averaged 4 percent.

The report stressed that the big unknown about China's economic prospects is how well the huge country will be able to mobilize and effectively use all its resources, "especially people." The authors also emphasized that because China is difficult for outsiders to understand, the projections in the report are highly tentative.

Any developments on the domestic or international scene that interfered with investment in China or its recent efforts to boost efficiency, could constitute a major set-back to the growth rates, the report said.

"In any event, experience in China and other socialist countries strongly suggests the desirability of cautious planning. Unrealistically high growth targets cause fluctuations, shortages and inefficiency, while aiming too low has few adverse consequences," the report said.

Even after allowing for the advanced technology that its new policy of openness to the West will bring, the World Bank analysis said that China will have to make coordinated progress on three fronts to achieve its goal of rapid growth:

*Greater use of market regulation to "stimulate innovation and efficiency," especially in reducing costs and improving the quality of its products.

*A willingness "to promote and steer" China's development through indirect controls on credit, taxes and subsidies.

*Maintenance of the existing system of "fairness in distribution that is fundamental to socialism."

On the latter point, the report noted that China has been highly successful in reducing extreme poverty among its people, and raised the question whether the policies that worked so well in the past can meet the social objectives of a middle-income China.

The authors answered in the affirmative, adding: "However, economic reforms and greater technological dynamism could increase income disparities, while economically desirable changes in the price, wage and employment systems could make it more difficult to use these things as instruments of social policy."

A middle-income China, the report noted, will bring great changes in international trade. The traditional exports of textiles and clothing will grow less rapidly because China will need to make a major effort to beome an exporter of machinery and metal products to pay for the necessary imports of both capital and consumer goods.

It suggested that China will be encouraging more direct foreign investment, less for the technology than for "the demonstration effect of modern management techniques."

This will require foreign and joint ventures to be spread "among a wide range of localities and activities, rather than confined to special zones or particular sectors."