China's slowdown worries 'overblown,' reform needed

English>>Business

Editor's Pick

China's slowdown worries 'overblown,' reform needed

(Xinhua) 08:19, August 09, 2013

Email|Print|Comments

twitter

facebook

Sina Microblog

Worries triggered by the recent slight slowdown in China's economic growth are "overblown," but Chinese policymakers need to continue pushing forward key reforms to facilitate its economic restructuring, a China expert said Thursday.

China is still among the fastest growing economies in the world, and only a handful of countries grew faster than 7.5 percent in the second quarter, most of which were much smaller, Ryan Rutkowski, a China Research Analyst with Washington-based Peterson Institute for International Economics, told Xinhua in an interview.

"Overall conditions still look better than the end of 2008 and early 2009 just before the stimulus. Growth has slowed but only gradually. External demand is in better shape than it was a few years ago thanks in part to an improving U.S. economy," he said.

"Policymakers are carefully reining in credit growth to certain sectors, while maintaining macro prudential controls on real estate. So far the slowdown in investment looks manageable," the expert added.

In the short run, growing investment in China's service sector, upgrading in the industrial sector, and some urban infrastructure investment can help stabilize its economic growth, he said.

As the service sector expanded by 8.3 percent in the first half of 2013, faster than the 7.6 percent GDP growth, employment and wage growth in the service sector will help offset some of the weakness in the industrial sector, Rutkowski said.

"In the long run, rising household consumption supported by more efficient resource allocation and employment opportunities in the service sector will support more sustainable growth," he added.

Rutkowski cautioned that the real concern for the world's second largest economy was the weakening household income growth. In the first half of this year, disposable income growth rate fell rapidly presumably due to weakness in the labor market.

China's real urban disposable income rose 6.5 percent in the first half of this year from a year earlier, about 1 percentage point slower than the GDP growth rate in the same period, Chinese official data showed.

"This is a concern because if the current growth rate is sustainable, we would like to see growth that is supportive for rebalancing i.e. household incomes grow faster than GDP," he added.

Economists hold that if Chinese policy makers want to successfully move the economy away from export- and investment-led growth and toward one driven by domestic consumption, its household income and consumption growth should outpace the GDP expansion in coming years.

On recent measures taken by the central government to cut taxes for small- and micro- enterprises, support exporters, and invest in railroad, Rutkowski said whether these policies will affect income growth remains unclear, but it is a good sign.

"The fact that the government has taken a lighter approach rather than a more large-scale stimulus like 2009 shows that policymakers are looking at the right things and trying to find an equilibrium growth level to support rebalancing," he said.

China's rebalancing efforts, Rutkowski said, concern not only Beijing itself, but also the whole world.

According to the "2013 Spillover Report" released by the International Monetary Fund (IMF) earlier this month, if China were to be successful in economic restructuring in coming years, this would add about 1.5 percent to global economic growth.

And this would be an equivalent drag on growth, if China were to fail to rebalance, he said.

On top of that, some commodity exporters like Brazil and other Asian economies including Japan and South Korea which are reliant on China as a critical part of their regional value chain would suffer severely, he added.