Impact from US stagflation on China limited

Updated: 2008-02-25 06:38

BEIJING -- The US may slip into stagflation with the subprime crisis, but that would have a limited impact on China, the World Bank's new chief economist and senior vice president Justin Yifu Lin said Sunday.

Lin told a seminar in Peking University the US economy would slip into recession as the subprime crisis hurt consumer spending and the declining dollar added inflation pressures by making the imports more expensive. The two factors may work to usher in stagflation for the US, he added.

He noted the US subprime crisis would have limited impact on China as demand by the US, China's second-largest trading partner, would not decrease by a large margin as most of Chinese imports were low- and middle-end.

The US would not allow further decline of the dollar if it faced stagflation and that would reduce the appreciation pressure on Chinese yuan against the greenback and the euro, he said.

Lin, head of the China Center for Economic Research (CCER) at Peking University, said that unlike some other Olympic hosts, China would not face recession after the Beijing Olympics.

"That (recession) would not be repeated in China," he said, adding that compared with the nation's total investment, the size of the Olympic-related investment was very small.

"China will experience a better economic growth after the Beijing Olympics, as investment, consumption and export, the three economic growth drivers, remain strong," he said.

Lin planned to officially assume office at the end of May after teaching spring courses at Peking University and completing CCER work.

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