BIZCHINA> Review & Analysis
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BIZCHINA> Review & Analysis
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China to see double-digit GDP growth again: UK expert
(Xinhua)
Updated: 2009-11-05 13:50 China will likely register GDP growth of about 9 percent this year and soon could return to double-digit territory, says Danny Quah, an economics professor from the London School of Economics and Political Science. China in transition process Quah said during an interview with Xinhua that China's four-trillion-yuan (about $588 billion) stimulus package has boosted investment and domestic spending and promoted trade in East Asia. The economist said the Chinese government is trying hard to transform economic growth stimulus from exports to domestic consumption, and believes China can accomplish it without too much difficulty. Emerging countries such as China and India will soon double the world's number of middle-class consumers and that will totally change the face of consumption patterns, as long as the world can continue to trade openly, Quah said. "Even if we weren't in the global economic crisis, even if we didn't have these global imbalances, it is right for China to improve its social insurance program, its social welfare provision and its social healthcare provision," he said. "The efforts of boosting the social safety net in China is moving in the right direction, not just because of global imbalances but because that will improve the welfare of the Chinese citizens." China's GDP growth was likely to reach 8 to 9 percent this year, and may return to double-digit growth era soon, he estimated. But at the same time, he also warned that protectionism would still be a key external factor casting a shadow over China's economic growth. "If the world becomes protectionist and chooses trade barriers, it will have huge effects on China's economy," Quah said. In addition, climate change and environment are also major external factors, Quah said. "In longer term those are challenges that we need to deal with and I think that it will be painful for many countries to make these adjustments, not just for developing countries," he said. As for the Chinese yuan, the economist thinks that just allowing the Chinese currency to appreciate against the US dollar would not get rid of the US current account deficit. That's because, he said, the US is also running deficits with many other countries whose currencies are not tied to the yuan. "If there is a currency problem in the world it is not a yuan problem, it is the US dollar problem", Quah said. However, he pointed out that it will take a long time for the yuan to become a reserve currency. China's financial market needs to be liberalized long before the yuan becomes a reserve currency, he said. Fast recovery of East Asian economy The unexpectedly rapid recovery and growth of the East Asian economy is quite eye-catching, Quah said. One reason is that the global financial crisis largely haunts the United States and Europe while the immediate and direct impact on East Asia was smaller than those in two areas. People worry about exports to the US as its consumption slumps, but it's Eastern Europe that was most severely hurt by the decrease of US consumption, not East Asia, Quah said. "We didn't realize that actually a lot of East Asia trades with East Asia," he said, "There are strong sources of exports and domestic demand in East Asia itself and that seems to be holding the region together very well." It doesn't mean East Asia is uncoupled from the rest of the world, but it does mean that its links with global trade are not as strong as they used to be, Quah said. He refuted the saying that it's Asian thrifts causing the global financial crisis. "Not just Asia was running large trade surplus against the US, the oil producing nations and Germany are all running large trade surpluses against the US," he said. "If that mechanism is the one that is responsible for the global crisis, then we should not just be talking about Asian thrifts. We should be talking about German thrifts and oil exporting countries' thrifts and we should be talking about US over-consumption," he said. US economic contribution less important The US economy will recover pretty slowly, and its contribution to the world's economic growth is not nearly as important now as it used to be decades ago, Quah said.
He predicted the global economy will increase 3 percent this year and 3 to 4 percent next year. The economist also warned not to pull back the fiscal expansion and monetary easing measures too quickly, otherwise "we will see another downturn and there will be a loss of confidence, credit channels will dry up and the global economy will slow." "We need to be able to keep it under control whether there will be runaway bubbles, which are reproduced because some of this excess liquidity has gone into unproductive speculation," he said," Aside from those uncertainties, the fundamentals of the real economies remain strong." (For more biz stories, please visit Industries)
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