China may lose growth momentum: leading economistJune 19th, 2009 - 4:37 pm ICT by IANS
By Dipankar De Sarkar
London, June 19 (IANS) The Chinese economy, hit “very severely” by the global economic crisis, could dip one more time if the government does not roll out structural reforms that would seek to curb 20 years of excessive dependence on exports, a leading Chinese economist has warned.
Delivering a speech at the London School of Economics Thursday, Yu Yongding, director general of the Institute of World Economy and Politics at the Chinese Academy of Social Sciences, also warned that two decades of investment-driven growth strategy had led to serious problems with over-capacity.
If the Chinese government was unable to speed up structural reforms, he said, “the Chinese economy may lose its growth momentum in the near future”.
Yu, a former adviser to the Chinese central bank, said China was on course for an economic growth rate of between 8 and 8.3 percent this year, but mentioned three main structural problems facing it: high external dependency, high investment rate and the wealth gap between different social groups and between rural and urban areas.
“Growth should not be achieved at the expense of structural adjustment. If China fails to tackle these structural problems, growth is likely to have a W-shaped trajectory. The current crisis is a good opportunity for speeding up of reforms,” he said.
Some economists say a W-shaped recovery in the global context would see a “double dip” - with tentative recovery at the end of 2010 or early 2011 being brought down temporarily by rising prices, taxes and interest rates.
Yu said policy rebalancing since 2006 had seen China’s dependency on external markets - a key element in its high-growth trajectory - beginning to fall, the exports growth-rate declining from 20 percent in October 2008 to minus 2.2 percent in November.
“Statistics show that the most important cause for the collapse of China’s growth in the third quarter of 2008 was attributable to the sudden collapse of the export market, which was in turn caused by the sudden worsening of the US financial crisis since the collapse of the Lehman Brothers,” Yu said.
Yu warned that failure to address structural problems would lead to long-term problems and “worries about sustainability”.
“The Chinese government is facing the dual task of crisis management and structural adjustment. While we can say that the crisis management has been successful, the same is difficult to say about structural adjustment.”
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