China’s Growth Pattern Unsustainable, Ex-PBOC Adviser Yu Says
China’s government-funded economic growth faces an “inevitable” slump because the nation’s export-led strategy isn’t sustainable, said Yu Yongding, a former adviser to the Chinese central bank.
“The investment rate cannot increase forever,” Yu, a member of the Chinese Academy of Social Sciences, said in a speech in Melbourne last night. “The growth rate of China’s exports cannot remain persistently higher than that of the global economy. Overcapacity will surface and correction is inevitable.”
China’s economy grew 8.9 percent in the third quarter, the fastest expansion in a year, spurred by an unprecedented $1.3 trillion of loans this year and a $586 billion stimulus package running through 2010. China’s leaders may highlight inflation concerns at a meeting this month to set economic priorities for 2010 without changing existing fiscal and monetary policies, economists said yesterday.
“Expansionary fiscal and monetary policies have succeeded in arresting a fall in growth,” Yu said. “However, the medium and long-term impacts of the expansionary policies are worrying.”
Those effects include overcapacity, a decline in investment efficiency that will weigh on long-term growth, poor infrastructure efficiency, an increase in non-performing loans, and loose monetary policy, he said.
“There is no need for China to drop the benchmark interest rate to such a low level,” he said. “If commercial banks had been allowed to make decisions based purely on economic considerations, growth of credit and money supply would not have been so fast. There would have been less need to worry about the possibility of a rising non-performing loan ratio, a worsening economic structure and resurgent asset bubbles.”