Experts advise against major changes despite a challenged economy

A stimulus plan worth billions of dollars was also reported in the pipeline, including tax cuts. However, some economists are debating whether such a firing-up initiative is necessary.

A container pier is seen at a port in Shanghai, in this file photo taken on July 10, 2008. China's exports are actually performing better than previously thought, increasing by 21.9 percent in the first half. [Asianewsphoto]

"The economy is not really weak," Huang Yiping, an economist with Citigroup wrote in a research paper recently. "China needed economic stimulus policies during the Asian financial crisis, but it doesn't need them now."

There are also suggestions of a looser monetary policy. The central bank may start to lower the reserve requirement for commercial banks at the year end, according to JP Morgan chief China economist Frank Gong. Calls for a lift of credit control are growing louder.

However, Ben Simpfendorfer, an economist at the Royal Bank of Scotland in Hong Kong, opposed such moves. "It is too early for a change in monetary policy," he said.

Inflation concerns run counter to easing credit. The Consumer Price Index runs at a decade-high level although it declined a little in the past few months. And the Producer Price Index (PPI) jumped to a 12-year high of 10 percent in August. That may lead to a rebound in CPI, as it usually takes four to six months for the PPI to pass on to the CPI.

However, many officials and economists are optimistic about the status of the economy, and have dismissed any reason to panic.

"Our advice is: just calm down," Arthur Kroeber, head of Dragonomics consultancy in Beijing, told the Financial Times recently. "China's economy is basically in fine shape."

Exports, a key driver of China's economy, are actually performing better than previously thought, increasing by 21.9 percent in the first half.

Retail sales were solid with a real growth rate of 15.4 percent in July after adjusting for inflation, the strongest increase in the past 10 years, according to a HSBC report.

Investment, another major driver of economic growth, also fared well. In the first six months, fixed assets investment grew 26.3 percent from a year earlier, compared with 25.9 percent in the same period last year.

China has plenty of investment prospects as it prepares to host the World Expo in Shanghai as well as the Asian Games in Guangzhou in 2010, among many other international events.

In addition, the central government and local governments have much cash at their disposal, which can be spent on building railways, roads, or other infrastructure, thus providing a huge boost to the economy, economists have argued.

They believe the broader prospect for China's economy is strong non-stop growth this year, though uncertainties remain about the outlook for 2009 and beyond.

Li Huiyong of Shenyin Wanguo Securities advocated a dose of medicine to ensure the health of the economy. "A combination of a tightening monetary policy and loose fiscal policy is the solution," he said.

A tightening monetary policy is effective in controlling price rises, while a relaxed fiscal policy will boost government spending and create jobs, just what China needs at its present stage when it faces the risk of stagflation, Li explained.

Source: China Daily