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Sound, selective investment policy key to maintain Chinese economic health


08:08, July 20, 2012

BRUSSELS, July 19 (Xinhua) -- China needs to balance the need for expansive fiscal policy with more sound and selective investment policy to maintain economic health, a renowned scholar said in a recent interview with Xinhua.

"Otherwise, it would soon fall into the trap of Japan and Europe with escalating debts," said Hosuk Lee-Makiyama, director of the European Centre for International Political Economy (ECIPE), a Brussels-based thinktank.

Makiyama argued that Chinese top policy-makers have taken note of current problems, saying that "the current five year plan contains many of these elements for the structural reforms that are needed."

"But for the first time in recent Chinese history, a failure to deliver the plan will be costly and actually hurt the prospective for the Chinese economy," he warned.

When asked about his expertise on the so-called "Chinese collapse" theory, he said it was an exaggerated and misguiding speculation. "There may be a substantive risks from the slowdown or a possible financial crisis - but China is relatively fiscally and politically well-equipped to manage or pay itself out of a crisis."

The interview was conducted amid a number of signs of economic slowdown in recent months. Official statistics released last week showed that China's gross domestic product slowed to 7.6 percent in the second quarter, the lowest level in three years, where as industrial production growth also dropped to a record low of 9.5 percent year-on-year since 2009, below market expectations of 9.8 percent.

Meanwhile, the People's Bank of China, the Chinese central bank, lowered its benchmark interest rate twice within a period of one month, in a bid to encourage borrowing and lending, as well as economic activities.

Makiyama said Chinese economic policymakers at this stage were concerned to avoid a hard landing on the one hand, and to adopt necessary long-term reform with reorientation towards services and domestic demand on the other.

"It is very clear that China's economic planners are seeking moderation between short and long term," Makiyama remarked.

"Crisis policies, especially continued stimulus packages, have the risk of becoming permanent and will obstruct these long-term reforms. Measures that help on the short term may actually be counterproductive on a 5-10 year perspective," he warned.


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