BOAO, China — China’s economic reform efforts could lead to a “crazy” situation, said Hans-Paul Bürkner, chairman of Boston Consulting Group.

The government is working to transition the economy away from China’s old growth model — driven by manufacturing and exports — toward one supported via services sectors like healthcare and IT. But that means cutting back on overcapacity in areas like coal and steel, and retraining millions of workers to take on new vocations — a major challenge that could create social unrest.

“Some people will lose jobs … that’s crazy, it creates hardship,” Bürkner told CNBC. “It’s not easy to train coal miners and make them become software engineers. I’ve never seen that happening anywhere in the world.”

It will take delicate maneuvering, and it’s these painful strategic reforms that Beijing must implement in order to sustain economic momentum and to continue attracting foreign investment into China.

Multinational companies in China have long complained of protectionism, saying that the government supports only its own, which creates unfair competition. The murky regulatory environment has also made operating in the world’s second-largest economy a bit of a minefield.

But this also needs to change, Bürkner said, explaining that China will need to open up to more trade and investment in order to shore up continued growth. Allowing a more level playing field for companies to compete in all sectors is necessary “to make sure millions of companies will come up and to create jobs,” he said.

Managing unemployment is an issue that Beijing has long identified as an area for progress. This year, the government has pledged to create 11 million new urban jobs, and has set aside funds for resettling laid-off workers. But the question remains whether that will be enough to keep pace with the number of displaced workers, and the skilled graduates coming from universities each year.

Despite the headwinds, Bürkner sounded a positive tone, saying “there’s a lot more confidence today and this year … that China will deliver 6.5 percent growth.”

By Sophia Yan

CNBC

 

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