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Eurozone crisis seen dragging down China's economy

By Chen Yang (Global Times)

09:19, November 03, 2011

China's economic growth will keep slowing down this and next year due to sluggish exports amid the eurozone debt crisis, but a hard landing is unlikely, given the government's flexible policy approach, experts said at a forum in Beijing Wednesday.

China will continue to be the key driver for the global economy, but its growth will slow to 9.2 percent this year and 8.6 percent in 2012, said Timothy James Bond, chief Asia economist at Bank of America Merrill Lynch. He said this was mainly because of an expected slowdown in export growth from 21 percent this year to 10 percent next year.

Vice Minister of Finance Li Yong said China's economy faces increasing external challenges, in particular the slowing world economy, global inflationary pressures and the eurozone debt crisis.

Europe, China's largest export market, is still struggling to resolve its debt crisis, said Li, and export companies also face difficulties such as protectionism and the appreciation of the yuan. However, China's economy is on the right track and the government will take a flexible policy approach to dealing with these challenges, he noted.

"We don't think China's economy is heading for a hard landing," said Bond. He also said the yuan is not massively undervalued, and is likely to appreciate gradually against the US dollar in 2012.

Bond told the Global Times that China should play a more important role through the existing channels, including having larger voting rights at the International Monetary Fund and giving more money to the IMF. "I don't think China should provide money to other channels, for example, to directly help the eurozone," he said.

"Considering the uncertainties in Europe, Chinese companies should keep waiting for cheap euros before taking actions like buying euro-denominated assets," said Bond.

China has played down its own potential role in any deal with the eurozone rescue plan. Li said China would cooperate with other countries and international financial institutions to cope with the eurozone crisis, without giving details.

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