Chinese economy to have soft landing: Economist

Updated: 2011-05-11 14:37
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STOCKHOLM -- Sweden's SEB bank senior economist Klas Eklund thinks that the Chinese economy will have a soft landing even though there is a high inflation currently.

Eklund made the comment in an exclusive interview with Xinhua during the break of a seminar moderated by him and organized by China Alliance in Stockholm on Tuesday.

"I think the inflation problem is mainly short term, if you look at the numbers it is mainly food prices. But I think food prices will start to come down during the spring and the summer, so the short term inflation will come down as well," Eklund said.

"Because we see the government is trying to massage different companies about their prices, and the tough measures on controlling housing prices also see results, the housing prices is leveling down. So I think China will have a soft landing," he said.

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But the problem is the long term credit expansion, he said.

"In the longer term there is a problem with the credit expansion and monetary expansion that was kicked off during the stabilization package two years ago, but the credit expansion slowly comes down too," Eklund said. "So I am not that nervous about long term inflation, I think China can handle that and inflation will come down slowly."

Eklund doesn't think that the American QEII or quantity easing policy directly contributed to inflation in China, but it might indirectly support China's inflation.

"The American monetary policy was something that was necessary to the United States because it was sliding to very deep recessions," Eklund explained.

He said now China is in a period of much rapid growth, which means China's monetary policy has to be different from the United States.

"China as a buffer to the United States of course can always use its currency policy so maybe there is some slight impact, but not that much," Eklund said.

When asked whether or not China's stabilization package was necessary, Eklund said China's package did a great favor to the world.

"China did a great service to the world economy by implementing this huge package. China was the biggest economy that keeps growing during the financial crisis, that truly helped the global economy, so I think China did the world a great service," Eklund said.

He said it is right that the Central Bank of China increases its interest rate now.

"When economy went down because of the United States and financial crisis, China tried to encounter that. Now the economy is moving up again, then you have to deal with the side effect of that, it is a normal way of handling this kind of crisis," Eklund said.

He said two years ago due to the financial crisis, various government gave stimulate packages, but now the world economy is recovering, one has to get out of the exit policy and raise interest rate.

Commenting on China's discussion of increasing salaries, Eklund said it is a good thing.

"There is some risks for inflation in the short term when the salaries increase. But for the long term it is a good thing for China to increase salaries because China needs to increase consumption, to be less reliant on capital intensive growth and rely more on consumption, that is a very important part of changing economic strategy when you think of the 12th five-year plan," said Eklund.