Former vice-president of World Bank says China will not decline like Japan
China will not follow in Japan's footsteps of the 1990s and fall into a so-called balance-sheet recession period characterized by income being used to pay down debt rather than spend, according to a top economist.
In an exclusive interview with China Daily, Justin Yifu Lin, dean of the Institute of New Structural Economics at Peking University, said despite facing some difficulties including housing-related debt issues, the Chinese economy, with endogenous strength from factors like its enormous domestic market and increasing innovation capability, is well poised to rebound and experience "dynamic" growth and make a great contribution to global economic development.
"When income does not grow and debt is very high, debt payments will become a burden forcing households and enterprises to reduce investment and consumption in order to repay loans, leading to sluggish economic growth," said Lin, a former senior vice-president and chief economist at the World Bank.
China's debt level is not that high compared with many others in the world, and more importantly, Chinese people's income is still on the rise thanks to emerging industries and industrial upgrades, he said.
"The key issue is whether we will be able to continue to have dynamic growth. In the case of Japan, after the Plaza Accord, they voluntarily or involuntarily gave up the semiconductor industry, and we didn't see any new industry emerge in Japan," Lin said.
"I'm sure China will continue to have technological innovation and industrial upgrading to raise the productivity, and with that, the incomes of households and profits of companies will increase," he added.
Recent economic data has indicated that the economic recovery in China is gathering pace.
Fresh data from the People's Bank of China, the central bank, showed that the aggregate social financing, or the total amount of financing to the real economy, reached 4.12 trillion yuan ($560 billion) in September, up by 563 billion yuan from a year earlier and 1 trillion yuan from August, respectively, pointing to a picking up of financing activity.
According to the National Bureau of Statistics, China's official manufacturing and nonmanufacturing purchasing managers indexes both improved in September to 50.2 and 51.7, respectively. The figures were both above the 50-point mark separating contraction from expansion.
Lin believes the current difficulties facing the Chinese economy are mainly rooted in the external environment. Sluggish global economic growth subdues demand for Chinese products, affecting domestic investment and consumption, he said.
He suggested Chinese authorities expand the fiscal deficit and ease monetary policy to boost investment, consumption and job creation, and enhance confidence.
The economist added that despite the attempts of Western countries, the United States in particular, to weaken China's position in global industrial and supply chains through trade restrictions, China has reached a stage that "as long as we think it's necessary, we will be able to mobilize enough resources and talent to get breakthroughs in those areas (facing Western countries' trade restrictions)".
"Huawei is a very good example. Huawei cannot import those chips from US companies, but as you see, Huawei has already got breakthroughs. I think the story that applies to Huawei will also be applicable to other sectors in China," Lin said.
Trade is win-win for any country, he said, adding the best way for China to address trade restrictions and curtailment attempts from the US and others is to maintain stability, growth and openness, through pursuing technological innovation and industrial upgrading to expand the domestic market while at the same time further opening up to the rest of the world.
"We have every intention to maintain peace and stability in the world, and we also want to contribute to the stability and growth in the world," he said.
"As long as we do our things right, and maintain our stability and growth, I think by opening up our economy to the world, we'll be friends to everyone in the world."