In a country short of resources and of low growth efficiency, deflation and overheated investment would be possible to occur once economic growth exceeds 8 percent. The urgent task facing China's economy now is not to discuss whether the economy is overheated or not, but to adopt the most suitable policy to control it, Wu Jinglian, eminent economist said lately at a forum hosted by China Europe International Business School.

The central bank has adopted methods such as raising the ratio of deposits to control money supply, Wu said. The intention of the central bank is very clear--to make slight adjustment first through monetary policies to see the effect, then to take further actions if the result is unsatisfactory, while the possibility of adjusting current interest rate cannot be ruled out.

Wu gave his comment on domestic economic policies. He is of opinion that the national economy had already shown signs of being overheated in the later half of 2003, with the fixed assets investment reaching 24 percent and 43 percent during the first quarter of 2004. Besides, broad money has been on the rise since 1998 with at a rate of around 2 percent annually, which would have surely exceeded 20 percent in 2003 if the central bank failed to take measures.

But the facts don't prevent Wu from holding a cautious optimistic attitude towards a "soft landing" of China's economy. He said that the country has not yet lost the final chance for it.

Since last February, the central government has supported the central bank to lay hand over the gross money supply, i.e. to use monetary policies, Wu stressed. Experts from the central bank are experienced and it's hopeful for China to achieve a "soft landing". Wu doesn't support independent control measures on overheated sectors and departments, saying in this case it will incur great loss of efficiency yet the economic conditions may not get a noticeable improvement, and it is likely to confront with oppositions from some regions and enterprises.

Wu holds that the appearance of overheated economy in China chiefly lies in too low an investment efficiency. In 2002, China's total investment accounted for 42 percent of GDP, which reached around 46 percent last year, while the figure is usually 10 percent in the United States. India has similar GDP growth with China, but its investment takes up only 24 percent. China's economic growth is of a comparatively low quality, which gives rise to a phenomenon that once GDP growth exceeds 8 percent the economy will get overheated quickly. To solve the problem from the root we must raise efficiency. However, the fundamental way to raise efficiency is to carry out reforms, which are now focused on the banking system.

Moreover, Wu also made personal comments on some current policies. The State Development and Reform Commission sent inspection teams to check investment projects of some sectors such as steel to make sure that unlicensed projects are stopped and agricultural lands are not used for other purposes. Local governments must also guarantee that lands for local use are not used for other purposes. This is a measure of micro-interference.

"In my point of view, the measure might not yield good results yet is quite costly. For example, the efficiencies in land-use in east and west China vary greatly, so the one-size-fits-all measure can hardly prove effective". He holds that policies must be made with a more scientific and cautious attitude.

Of course, this is only his personal view.

By People's Daily Online