Monday, July 28, 2014

Caution: Pitfalls ahead

February 20. 2013 4:53AM
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Officials and economists alike seem to be sure that China's year-on-year growth will exceed 8 percent this year. While the existing data underpin such optimism, China faces both domestic and international challenges in maintaining stable growth.

Indeed, if the world economy fares better this year, as the International Monetary Fund has forecast, it will provide solid support for China's growth, which remains dependent on the external environment.

But the IMF's prediction that the worst may have passed does not mean the global economy will recover instantly. The expected recovery, if any, is set to be gradual and mild, and it will not provide a strong shot in the arm for the Chinese economy.

Apart from increased financial market volatility from the European debt crisis and uncertainties regarding the U.S. fiscal position, Japan has vowed to start monetary loosening.

For China, the volatility resulting from international financial turbulence is very harmful, as it can cause fluctuations in the domestic financial and real estate markets, and can push up inflation, all of which will force policymakers to tighten their monetary stance, which will in turn cause an economic slowdown.

China's policymakers need to be aware of the possible pitfalls ahead.

China Daily, Beijing

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