China will manage slowdown, says Australian bank chief
The Chinese government will be able to manage the slowdown of its economy to avoid a hard landing.
HONG KONG - The Chinese government will be able to manage the slowdown of its economy to avoid a hard landing and maintain strong growth in the future, Australia's Reserve Bank governor said Monday.
But Glenn Stevens said the world's second biggest economy would have to find a new economic model that relies less on foreign demand for cheap exports and more on domestic demand for its own goods and services.
"The slowdown in Chinese growth, from 10% to a mere 8%, is a major talking point, and some see it as portending a major crash," Stevens told a conference in Hong Kong.
"But some slowing was required to reduce inflation and, therefore, put growth on a more sustainable path."
Chinese Premier Wen Jiabao told the National People's Congress, the annual parliamentary meeting, in Beijing this month that China would target 7.5 percent growth in 2012, well below the 9.2% recorded last year.
The slowdown, which sent jitters through global markets, comes as China's exports are buffeted by weak demand from the United States and crisis-hit Europe.
Australia was the only developed economy to avoid a recession after the 2008 global financial crisis, largely thanks to Chinese demand for its minerals needed to maintain its massive construction boom.
Stevens said China could still have a "hard landing", but with inflation showing signs of easing he was confident Beijing would be able to manage the adjustment to a more sustainable growth trajectory.
"If the Chinese economy does slow ‘too much’, one could expect that the Chinese authorities will have both the will and the capacity to respond, the more so now that inflation has moderated," he said.
"China will have cycles like other economies, but it seems likely that the Chinese economy will grow pretty strongly on average for a while yet. It will be a very large economy."
Even at the new growth target of 7.5%, China's gross domestic output would equal that of the United States in Purchasing Power Parity terms in "about a decade".
"It will exceed that of the euro area within the next few years," he said.
But China and the rest of Asia would have to adjust to the new global economic realities, even as Australia and other developed markets confront their own structural changes.
"First, it is not a sustainable model to expect developed world households to consume ever higher volumes of the output of Asian factories with borrowed money," he said.
"That model cannot return, which means that the imperative to find domestic sources of growth is not just a cyclical one."
He said the "eventual sheer size of the Asian economy" meant Asians would have to buy more of their own output than they do now.
The decline in domestic demand relative to GDP in East Asia, outside of China and Japan, during the 1997-98 Asian financial crisis "largely remains in place more than a decade later," Stevens said.