Business / Economy

Worries over Chinese economy rushed, exaggerated: economist

(Xinhua) Updated: 2016-04-05 10:06

SINGAPORE - The little bit of calm that has returned recently shows that the concerns outsiders had about the Chinese economy had been somewhat rushed and exaggerated, a senior economist said.

The signs of recovery in the financial markets including prices of commodities such as iron ore and oil suggest that the Chinese economy was not so bad as to have to experience a hard landing, Sun Bae Kim, professor at the Business School of National University of Singapore and former chief Asia economist at Goldman Sachs Asia, said in a recent interview with Xinhua.

"I am very positive (about the Chinese economy) for the medium term," but the road ahead is challenging, he said.

The economist said it is understandable that China set its growth target this year at between 6.5 percent and 7 percent as it indicates a recognition that it is better to tackle certain problems sooner than later.

"It is important in the broader context that you are willing to accommodate a slower growth over the next several years in order to set the stage for the restructuring to allow a higher growth in medium term," he said.

China's economy grew 6.9 percent last year, its slowest in over two decades but still one of the fastest growth rates in the world.

Kim said China needs to tackle challenges including a buildup of debt in the aftermath of the global financial crisis and excessive capacity in certain industries, and the poor profitability of some firms.

The important question is not the specific growth targets China sets for a particular year, but whether China can basically maintain a certain growth level while tackling some structural issues, Kim said.

"If China undertakes some of the reforms, I think China could easily grow 6 percent to 7 percent in the medium term," he said.

"While you are doing this structural reform, it's most likely growth will be slower, though it is not necessarily so," he added.

Chinese policymakers have said they have ample policy room to ensure that economic growth remains stable within an appropriate range. Meanwhile, China has been encouraging the growth of new technologies and businesses to pursue more innovation-driven economic growth.

Kim said these are important as it means the economic growth will be underpinned by productivity increase and more sustainable.

He said it is necessary for China to further reform the financial system and state-owned enterprises so that the allocation of resources will favor more productive sectors and companies. Deregulation could potentially lead to productivity increase in many sectors, too. China also needs to shift to growth driven by consumption and services.

The economist said that it is a delicate balancing act for China to push for reforms while maintaining financial and economic stability and that it is necessary to enhance communication with the market.

"I am quite in an agreement with China's big picture plan," he said, referring to China's financial sector reforms.

Kim said that the policy direction of pursuing a more flexible and international yuan, the Chinese currency, is very sensible and desirable, but that it is necessary to take into account some short-term constraints.

The economist also highlighted China's status as the world's largest trader and its connection with virtually all major economies.

"What happens in China at home is everybody's business," he said.

Kim said that China's efforts to enhance regional connectivity, like the Belt and Road Initiative, with a focus on infrastructure construction, could boost regional growth.

"It offers new commercial opportunities," he said.

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