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China to capitalize on US slowdown

A slowdown in the US economy will affect China, but maybe in a positive way, according to Chinese economists and analysts.

“The financial tsunami in the US will have a negative result on Chinese exports,” said Wang Tongsan, director of the Institute of Quantitative and Technological Economics of the Chinese Academy of Social Sciences (CASS).

Wang noted that “a drop of one percentage point in American gross domestic product would lead to a five percentage-point decline in the growth rate of Chinese exports.”

However, Zheng Jingping, a researcher with the National Statistics Bureau, noted that it was not export growth but the trade surplus that would be the key issue.

“The major source of Chinese exports is processing trade,” he said. “We import raw material before exporting it as finished goods. Therefore, it is still unknown if the trade surplus would see a sharp decline.”

A smaller trade surplus would not be so bad, Zheng added. “A reduction is good to ease international pressure, adjust the economic structure and enlarge domestic demand,” he said.

Zheng's view was shared by Fan Gang, director of the National Economic Research Institute of the China Reform Foundation.

“The Chinese economy, despite its continuous growth, has a structural problem,” he said. “If a drop of external demand could lead to adjustment, the change would be positive. Maybe this change would be a little uncomfortable' for some, but overheating of the economy could be 'very uncomfortable'.”

International Monetary Fund head Dominique Strauss-Kahn warned that “all the world's countries are suffering from the slowdown in growth in the United States, at least all developed countries.” His words have been borne out by stock markets around the world.

World share markets plummeted last month and markets in Europe had their biggest one-day losses on January 21 since the September 11 attacks on the United States, prompted by turmoil in the US sub-prime mortgage sector.

China maintained fast economic growth last year, with gross domestic product (GDP) up about 11.4%.

However, this week the World Bank cut its forecast for China's 2008 economic growth to 9.6% in its latest China Quarterly Update. It said that China's economic growth had begun to decelerate from its record high in 2007, after external demand slowed in the fourth quarter.

Discussing how to cope with the challenge, Xia Bin, the director of the Research Institute of Finance, which is under the official think tank Development Research Center of the State Council, pointed out that China should persist in its tight monetary policy. He said that it should make fewer interest rate adjustments during the first half of the year to leave more space for policy choices later.

“Expectations of appreciation are worse than appreciation itself,” Xia said. “China should dance to its own tune in exchange rate reform.”

Yu Yongding, director of the Institute of World Economics and Politics under CASS, said that China should take the opportunity to stimulate domestic demand. Yu said that doing so would help workers who lost their jobs due to changes in export growth find new jobs.

“The aggressive series of rate cuts by the US Federal Reserve would limit China's use of the interest rate lever,” said Wu Xiaoling, former vice president of the People's Bank of China. “Other measures might be taken to control the amount of money circulating in the market.” (Xinhua)