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China's Slowing Growth Brings Opportunities, Not Fears

Industry News 09:37:57AM Jul 23, 2012 Source:SMM

WASHINGTON, July 19 (Xinhua)-- As a big player in global economy, China posted a three-year-low growth rate of 7.6 percent in the second quarter, triggering fears of a hard landing of its economy.

But some experts here saw little reason for such concern, saying the slowdown is more of Beijing's self-initiated efforts to restructure its economy and to shift its development model.

They also said the deceleration, which comes as expected, would allow more space for the country to put its growth on a sustainable path.

NOT A SURPRISING DECLINE

Nicholas R. Lardy, a senior fellow at the Peterson Institute for International Economics, said the slower growth "is not necessarily a bad thing," as it still falls within the official growth target of 7.5 percent set up at the beginning of the year.

The fine tuning showed Beijing cares more about the quality and sustainability of its economy rather than growth figures, he said.

In this connection, "this (the slowdown) is fully consistent with what they are trying to achieve," Lardy said.

Michael Pettis, a senior associate in Carnegie Endowment for International Peace, a Washington-based think tank, said "it is almost impossible for China to re-balance except under conditions of much slower growth and rising real interest rates."

"The fact that Beijing allowed growth to slow so sharply, and more importantly that it has refrained from lowering interest rates as quickly as inflation has declined, shows that the leadership is willing to take decisions that are necessary for sustainable Chinese growth in the medium term," he told Xinhua in an interview.

Yukon Huang, also a senior associate at Carnegie Endowment for International Peace, said the disappointment at China's growth figures reflects how dependent everyone has become on China to propel the global economy given the protracted economic woes still plaguing the United States and Europe.

The slowdown in China's economic progress might rattle other economies, Huang said, but for Beijing itself, slower growth can be a good thing if it is part of a transition to a more efficient and sustainable growth path.

AMPLE SPACE TO AVOID HARD LANDING

The International Monetary Fund (IMF) on Monday revised down its projections for China's growth this year from 8.2 percent to 8 percent, citing external shocks as a major drag.

As the eurozone debt crisis reaches a crescendo and U.S. flagging economy continues to weigh on global markets, China would face more downward risks.

Chinese Premier Wen Jiabao warned the economic hardship may continue for a period of time, promising further efforts to fine-tune policies to make them more targeted, foresighted and effective.

The Chinese central bank has cut interest rates and reserve ratio requirements to stabilize the economy.

"China has ample capacity to avoid a hard landing," Lael Brainard, the U.S. Treasury's under secretary for international affairs, said at a Washington-based think tank on Wednesday.

"Chinese authorities have been very pragmatic ... We've seen some indications they are going to be much more focused on lifting domestic consumers," a key part of the re-balancing efforts to make the growth more sustainable, she noted.

Former U.S. Treasury Secretary Henry Paulson also dismissed the suspicions of China falling into a downward spiral.

"There is no doubt that the economy has slowed down significantly," Paulson said Tuesday in an address at the Atlantic Council, a think tank in Washington. "My own best judgment is that we're not going to see a hard landing," he said.

"I would be quite surprised" if China's economy does not grow somewhere between 7.5 percent and 8 percent this year, he added.

China has embarked on a process of steering its economy on a more sustainable path, away from exports and investment, to a greater reliance on domestic consumption.

Pettis said the combination of China's re-balancing and lower commodity prices bodes well both for China and the world at large.

HOPEFUL BUT BUMPY ROAD AHEAD

In its latest report, the IMF warned that the global economy, which was not strong to start with, has shown signs of further weakness. It urged the emerging countries to get ready to cope with trade declines and the high volatility of capital flows.

Although China has vast resources to stay on track, many economists worried that the road ahead could be bumpy, especially as global economic picture darkens.

Pettis noted that the key reform, and probably the most difficult to implement, is to let real interest rates rise. This will give a boost to the income of ordinary households, who save a great deal of their money in the form of bank deposits.

"The leadership should consider moving more aggressively on a variety of structural reforms that would have an expansionary impact on the economy," said Huang.

"Although there is still considerable uncertainty about when China's downturn will bottom out, most indicators suggest that this is likely over the coming months," Huang added.

 

 

Key Words:  China's growth   hard landing 

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China's Slowing Growth Brings Opportunities, Not Fears

Industry News 09:37:57AM Jul 23, 2012 Source:SMM

WASHINGTON, July 19 (Xinhua)-- As a big player in global economy, China posted a three-year-low growth rate of 7.6 percent in the second quarter, triggering fears of a hard landing of its economy.

But some experts here saw little reason for such concern, saying the slowdown is more of Beijing's self-initiated efforts to restructure its economy and to shift its development model.

They also said the deceleration, which comes as expected, would allow more space for the country to put its growth on a sustainable path.

NOT A SURPRISING DECLINE

Nicholas R. Lardy, a senior fellow at the Peterson Institute for International Economics, said the slower growth "is not necessarily a bad thing," as it still falls within the official growth target of 7.5 percent set up at the beginning of the year.

The fine tuning showed Beijing cares more about the quality and sustainability of its economy rather than growth figures, he said.

In this connection, "this (the slowdown) is fully consistent with what they are trying to achieve," Lardy said.

Michael Pettis, a senior associate in Carnegie Endowment for International Peace, a Washington-based think tank, said "it is almost impossible for China to re-balance except under conditions of much slower growth and rising real interest rates."

"The fact that Beijing allowed growth to slow so sharply, and more importantly that it has refrained from lowering interest rates as quickly as inflation has declined, shows that the leadership is willing to take decisions that are necessary for sustainable Chinese growth in the medium term," he told Xinhua in an interview.

Yukon Huang, also a senior associate at Carnegie Endowment for International Peace, said the disappointment at China's growth figures reflects how dependent everyone has become on China to propel the global economy given the protracted economic woes still plaguing the United States and Europe.

The slowdown in China's economic progress might rattle other economies, Huang said, but for Beijing itself, slower growth can be a good thing if it is part of a transition to a more efficient and sustainable growth path.

AMPLE SPACE TO AVOID HARD LANDING

The International Monetary Fund (IMF) on Monday revised down its projections for China's growth this year from 8.2 percent to 8 percent, citing external shocks as a major drag.

As the eurozone debt crisis reaches a crescendo and U.S. flagging economy continues to weigh on global markets, China would face more downward risks.

Chinese Premier Wen Jiabao warned the economic hardship may continue for a period of time, promising further efforts to fine-tune policies to make them more targeted, foresighted and effective.

The Chinese central bank has cut interest rates and reserve ratio requirements to stabilize the economy.

"China has ample capacity to avoid a hard landing," Lael Brainard, the U.S. Treasury's under secretary for international affairs, said at a Washington-based think tank on Wednesday.

"Chinese authorities have been very pragmatic ... We've seen some indications they are going to be much more focused on lifting domestic consumers," a key part of the re-balancing efforts to make the growth more sustainable, she noted.

Former U.S. Treasury Secretary Henry Paulson also dismissed the suspicions of China falling into a downward spiral.

"There is no doubt that the economy has slowed down significantly," Paulson said Tuesday in an address at the Atlantic Council, a think tank in Washington. "My own best judgment is that we're not going to see a hard landing," he said.

"I would be quite surprised" if China's economy does not grow somewhere between 7.5 percent and 8 percent this year, he added.

China has embarked on a process of steering its economy on a more sustainable path, away from exports and investment, to a greater reliance on domestic consumption.

Pettis said the combination of China's re-balancing and lower commodity prices bodes well both for China and the world at large.

HOPEFUL BUT BUMPY ROAD AHEAD

In its latest report, the IMF warned that the global economy, which was not strong to start with, has shown signs of further weakness. It urged the emerging countries to get ready to cope with trade declines and the high volatility of capital flows.

Although China has vast resources to stay on track, many economists worried that the road ahead could be bumpy, especially as global economic picture darkens.

Pettis noted that the key reform, and probably the most difficult to implement, is to let real interest rates rise. This will give a boost to the income of ordinary households, who save a great deal of their money in the form of bank deposits.

"The leadership should consider moving more aggressively on a variety of structural reforms that would have an expansionary impact on the economy," said Huang.

"Although there is still considerable uncertainty about when China's downturn will bottom out, most indicators suggest that this is likely over the coming months," Huang added.

 

 

Key Words:  China's growth   hard landing