China has promising growth prospects: economist

Updated: 2010-06-02 10:09
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BEIJING: China has promising growth prospects and should not be blamed for world imbalances, says Danny Quah, a renowned British economist.

"Emergency financing that was placed in the Chinese economy to counter the downturn from the 2008 global financial crisis was the right thing...The imbalances is a global problem, not a China problem," said Quah, a professor at the London School of Economics and Political Science.

China did the right thing in infusing its economy with fiscal stimulus, Quah said in a recent interview with Xinhua.

He also declined to describe the ballooning real estate prices as a bubble, pointing out "the strong fundamentals" of China's economy.

He said the expansion of China's housing construction will be proved useful eventually, given the fact that "China is still engaging in the task of moving hundreds of millions of people from rural areas to urban China to continue to power its manufacturing and industrial progress."

"So I would not describe it as a collapse of real estate bubble, we can look forward to a rationalization of housing and real estate prices," Quah said. "The improvement and expansion of housing stock will play an important role in continuing to move the Chinese economy forward."

"I think Chinese fundamentals will continue to be strong. And a little bit of high inflation, as long as it doesn't break out into some kind of runaway high inflation, is probably no bad thing," he said. "We will get it under control again as the Chinese government did previously."

On allegations that China deliberately keeps its currency renminbi weak to obtain unfair advantages in trade with countries like the United States, Quah said people who draw such a false conclusion are misguided.

"The United States is running a trade deficit not just against China. It is running a trade deficit against almost 100 other countries," he said. "China is not unique in how it is exporting more to the United States than its importing."

The US government was beginning to run a large trade deficit long before China's trade surpluses started grow, he added.

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"If you take the ratio of China's bilateral trade surplus against the US as a fraction of the US' overall bilateral trade deficit against all of the countries, it has remained constant over the last 15, 20 years," Quah said.

He said these facts clearly show that the appreciation of renminbi will not end the US trade deficit, instead, it may produce unexpected repercussions upon the US economy and the rest of the world.

Quah said renminbi appreciation would also force American consumers to purchase goods from other nations at higher expenses.

"Revaluation proponents should be reminded that manufacturers of the US rely on the inputs from China," he said. "If China's commodities get more expensive, it would hurt the US industry, and hundreds of thousands of jobs will be destroyed."

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