Economists Urge Balanced Rebound in China

With price hikes, a weak overseas market and unbalanced global rebound, Chinese investors and consumers feel uncertain about the country's economy.

Though having raised its growth outlook for China this year to 10 percent, the World Bank is warning that the country needs to make the economy less reliant on trade and construction. Economists suggest that China could start by raising wages nationwide.

Su Yi reports:

The Federal Reserve has announced it will pump 600 billion dollars into the US economy by the end of next June as the second round of quantitative easing to boost recovery. Last month, the Chinese central bank decided to raise its benchmark deposit rate 0.5 percent while some other countries are also tightening their monetary policies.

The global rebound imbalance is merely one aspect of the less favorable international environment the World Bank mentioned in its quarterly Chinese economic report.

The World Bank says (quote) " the need to rebalance to more domestic demand-led, service sector-oriented growth seems stronger now than five years ago. "

Yuan Gangming, macro economist with the Chinese Academy of Social Sciences, agrees.

" The point is, although the urgency of economic restructuring has been recognized by top policymakers as reflected in the draft document of the next Five-Year Plan, it seems the gap between investment and domestic consumption is actually widening, which will threaten future growth. "

China has adopted a series of measures to tighten lending such as curbing housing prices and increasing interest rates, which have helped cool down growth to 9.6 percent in the third quarter.

Ardo Hansson, lead economist of the World Bank China, says the rebalancing will require significant policy adjustment.

" This setting is in important direction and hopefully will be the central point of the Five-Year Plan. There is no silver bullet and there is a range of package of reforms that can also include reforms of social sectors and urbanization. "

But one thing seems more urgent for Chinese consumers as the growth of the Consumer Price Index hit a 23-month high of 3.6 percent in September, over the government target of 3 percent.

Yuan Gangming suggests that raising wages nationwide should not be postponed.

" The long-expected wage raise could be the start of rebalancing investment and domestic consumption, although we have seen an increase of retirement and other social insurances. "

The economist also says increasing household income and domestic consumption are on the right track as long as the price hikes are in an acceptable range.

Meanwhile, both economists forecast a 3 percent inflation rate in the near future.

For CRI, I'm Su Yi.