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Interview: Financial expert says China's economy less likely to make hard landing in 12 months

(Xinhua)

10:16, May 26, 2012

NEW YORK, May 24 (Xinhua) -- Chen Zhiwu, a professor of finance at Yale School of Management, said Wednesday that chances are slim for China's economy to make a hard landing in the next 12 months as no big problems have been detected in its banking system.

"There is only a 5 percent probability in the coming 12 months that China's economy will have a hard landing," Chen said in a recent interview with Xinhua at an event organized by the Chinese Finance Association in New York.

In response to the projection by economists and hedge fund managers that China's banking sector will suffer a crisis soon, Chen said that such concerns are largely groundless.

"In China, the banking industry is positively correlated with the government's fiscal situation. As long as China' s fiscal situation remains sound, the bank sector will be fine," said the professor.

However, he voiced concerns about possible financial problems over the next 10 years.

"Three factors have driven China's economy in the past decades," said Chen, explaining the reasons for potential financial problems in the future.

The first is the so-called "WTO-related factor."

Chen said that since its entry into the WTO, China's exports have been greatly boosted. The country's export-oriented economy has thus been lifted up.

However, following an outbreak of the global financial crisis and the European sovereign debt crisis, China's economy is likely to be harmed by shrinking imports of its trade partners.

The second, according to Chen, lies in the infrastructure sector. From 2008 to 2010, the government invested heavily in infrastructure. With the construction projects in the sector being completed, the investment-driven economy will lose much of its impetus.

The last, he said, is related to real estate bubbles. With the boom in housing industry in the 1980s, China gathered pace in its economic development. Potential bubbles in the real estate industry may backfire on its economy.

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