China must quickly ‘quench the immediate thirst’ of a deepening economic slowdown, senior economist Yu Yongding says
- Yu Yongding, a senior research fellow at the Chinese Academy of Social Sciences, is the first domestic economist to call for Beijing to protect the growth rate in 2019
- President Xi Jinping has already warned of the challenges ahead in 2019, without specifically mentioning the trade war with the United States
Arresting a deepening economic slowdown, not making “baseless” deep-rooted structural reforms, should be the top priority for China’s economy in 2019, a senior economist said.
Yu Yongding believes Beijing needs to take every possible measure, including increasing money supply and boosting fiscal spending, to prevent the world’s second largest economy from tanking.
“China’s experiences in the last 40 years have told us that, all the problems will worsen if we can’t maintain economic growth rate at a certain level,” Yu, a senior research fellow at the Chinese Academy of Social Sciences, was quoted by the China Business News as saying on Tuesday.
“Without a certain level of economic growth speed, structural adjustments or economic system reform will be baseless.”
The comments by Yu, a former member of the central bank’s monetary policy committee who has been advising Chinese policymakers for years, came at a time when growth is quickly losing steam amid the trade war with the United States, reflecting growing concerns among researchers about a sharp deceleration.
The Caixin Purchasing Managers’ Index, which tracks the activities of small and medium-sized enterprises, dipped below 50.0 for the first time since May 2017 when December’s figures were released on Wednesday, showing manufacturing activities are contracting.
“It’s right to say that we should care about economic growth quality instead of speed, but such reforms and adjustments can’t be done in short period of time – the water from afar can’t quench the immediate thirst,” Yu said.
The Chinese government should not worry too much about the property bubble, worsening of debt issue or a weakening Chinese yuan while attempting to bolster growth, Yu added.
His words were the first from a renowned domestic economist on protecting the economic growth rate in 2019 when facing a potential narrowing trade surplus, or even deficit, and hesitant private investment after President Xi Jinping warned of the challenges ahead in the next 12 months in his new year’s message, without specifically mentioning the trade war with the US.
The Chinese leadership highlighted the importance of promoting “high-quality economic growth” in 2019 at the Central Economic Work Conference last month, and many economists and analysts have called for Beijing to show more tolerance toward a slower growth rate and focus on structural reform, which has become a demand of the White House during the trade war and is necessary for sustainable development of the Chinese economy.
Economists have warned that the US$12 trillion Chinese economy will face a weaker and tougher beginning to 2019, as the growth rate is likely to drop below the psychologically important threshold of 6 per cent in the first half of the year.
Chen Gong, chief researcher at independent Beijing-based think tank Anbound Consulting, wrote in a research note that China must now face the truth of its economy and defending a 6 per cent growth rate would be “the most urgent task”.
Figures suggest a further slowing of Chinese growth in the fourth quarter from the 6.5 per cent posted in the third quarter.
“If the official statistics show that Chinese economic growth is already below 6 per cent, everything will be too late,” he wrote.
“It will expose various troubles and problems … a large number of policies will have to be halted halfway, the policy direction will have to be changed again, and the government officers will be at a loss.”
Yu also called on Beijing to implement expansionary fiscal policy this year, increasing infrastructure investment and allowing the budget deficit to be higher than 3 per cent of gross domestic product (GDP).
“A slowing economic growth and a merely 2 per cent of the consumer price index are likely to push the central bank to adopt an expansionary monetary policy to achieve a higher nominal GDP growth rate,” Yu said.
Yu suggested that the People’s Bank of China has too many objectives in conducting monetary policy, including maintaining the exchange rate and property price stability as well as some other “structural goals”, while other central banks generally only focus on inflation.
“It is very reasonable to think that a rising housing price has led to an increase of money supply, rather than the opposite way,” Yu said.
“The Chinese central bank should not cut money supply due to worries about the property bubble.”