The mainland economy is in no danger of overheating and Beijing lawmakers will live to regret it if they allow the yuan to appreciate too quickly, according to Nobel Prize winning economist Robert Mundell.
Overheating in western economies meant reaching full employment, which then leads to wage inflation, 'but that's not going to happen in China where there is a reserve of unemployed people, 200 million to 300 million people', Mr Mundell told members of the Asia Society last night.
'The overheating is a red herring. China can maintain 9 to 10 per cent growth for several years. The rate of inflation isn't a problem in China.'
However, he said that rising raw material costs, particularly that of energy, could apply brakes to the economy, as could the country's chronic pollution problem.
Not only are its cities choked with dirty air and water, but its food industries are now exporting those problems to other countries in the form of contaminated food.
'This is a major problem. It's a problem that China in its own interest must solve,' he said.
Mr Mundell, a 75-year-old Canadian who has spent much of his time in China in recent years, advised against Beijing giving in to US pressures to make the yuan appreciate more rapidly, saying this was a one-way street that China would regret travelling down.
