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China's shift can maintain growth: Euro father

By Shan Juan  (China Daily)

08:23, June 12, 2012

Nobel Prize-winning economist Robert Mundell, also known as the "father of the euro", has called on China to boost domestic expenditure and consumption to guarantee continued growth of the world's second-largest economy for at least another 30 years.

While Europe is struggling to prevent the euro from unraveling, China should "get the economy back to a growth rate of 8, 9 or 10 percent", he said in an exclusive interview with China Daily.

To achieve that goal, he suggested that China allow further monetary expansion and pursue policy easing.

He said he appreciated the latest interest rate cut, announced by China's central bank on Thursday, and he also expected further reductions in banks' reserve requirements ratios.

China lowered interest rates by 25 basis points, the first cut in more than three years, to spur growth.

Given that the yuan is not convertible, the rate cut won't have a global impact, Mundell pointed out.

"Monetary policy remains tight, but as long as China loosens reserve requirements further this year, the economy will continue to grow at a good pace," he said.

GDP grew 8.1 percent in the first quarter of this year, the slowest pace in nearly three years.

The government has reduced its economic growth target for this year to just 7.5 percent, down from actual growth of 9.2 percent last year and 10.4 percent in 2010.

Since the fourth quarter of last year, China has cut banks' reserve requirement ratios three times to inject more liquidity into the market by allowing banks to lend more.

Mundell forecast China's GDP would maintain continued growth for at least the next 30 years — not at an annual rate of 10 percent, but at least 7 percent.

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