BEIJING (Reuters) - China could add $5.6 trillion to gross domestic product, and $5.1 trillion of new income for households, by 2030, if it can switch to a productivity-led growth model, the McKinsey Global Institute said on Thursday.
China risks a hard landing if it persists with investment-led growth, which could push the non-performing loan ratio up to 15 percent in 2019 from 1.7 percent now, it said in a report.
"In order to grow, they need to open up more of the economy to competition," Jonathan Woetzel, the report's lead researcher, said in an interview.
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China's urgent need to rebalance growth to more productive and higher margin sectors has come to the fore this year, as its banks have had to pump record amounts of credit into the economy just to maintain growth levels.
Global investors increasingly worry that Beijing's continued efforts to stimulate economic activity and hit growth targets are pushing debt to unsustainable levels, raising risks to the banking system.
It is vital for China to boost economic growth to ease corporate debt levels, economic and banking officials told a news conference on Thursday.
Corporate restructuring and streamlining company operations would boost productivity, but China has warned that efforts to restructure the industrial sector could bring millions of job losses.
"There's plenty of room for employment growth, based on meeting the needs of the middle class and providing a higher quality of business service," Woetzel said.
"And that's going to have to offset what's not going to be there, which are the jobs in construction and heavy industry."
Boosting aggregate demand is also a key prescription for increasing productivity, since consumers will demand higher-end goods and services.
But the lack of a social safety net and limited access to public services in cities has stifled growth.
"With regards to demand, the government has been a little overconfident," Woetzel added.
"They assumed that urbanization would basically take care of the demand side. But now we have growing inequality in cities, and that can offset gains from rural to urban migration."
(Reporting by Elias Glenn; Editing by Clarence Fernandez)