The Chinese economy has not recovered 100% from the Covid pandemic (former PBOC adviser)
Chinese policymakers are “too aggressive” to contain debt levels, a prominent Chinese economist told CNBC, while acknowledging that the economy has not fully recovered from the pandemic.
China, where the coronavirus was first detected, was the only major economy to grow last year. The country grew by 2.3% in 2020 compared to a year ago, mainly driven by exports, while the recovery in consumption has lagged behind.
“Overall, I would say the economy, the Chinese economy is not 100% back to normal. I would say 90% back to normal,” said Li Daokui, professor of economics. at Tsinghua University, to Martin Soong at the CNBC Evolve Global Summit. Wednesday.
Waving Chinese flag in front of Shanghai cityscape.
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Li, a former adviser to China’s central bank, said policymakers should give the economy more time to recover before cutting down on debt. He said consumer spending had not returned to pre-pandemic levels and some companies in the service sector were still struggling.
There have been signs that China has started to curb its debt.
It comes as debt continued to rise in the Chinese economy over the past year, as authorities attempted to make it easier for businesses to obtain loans to overcome challenges caused by Covid-19.
Chinese authorities have tried to curb further borrowing growth even before the pandemic, fearing that high debt levels could threaten the health of the world’s second-largest economy.
Risk of capital flight from China
Li also warned that the relative strength of the US economy increases the risk of capital flight from China and other parts of the world. Capital flight occurs when money or assets leave one country while another offers better returns on investment or better opportunities.
The professor explained that an economic recovery in the United States raises the possibility of the The Federal Reserve is normalizing its monetary policy. This will attract funds from other countries to the United States, he added.
“Not only will foreign money formally invested in the Chinese economy seek (…) an alternative to return to the United States, but also a lot of Chinese domestic money will be diverted from the Chinese economy,” Li said.
“It is a global risk for the whole world,” he said, adding that the threat is greater for economies like India and Brazil which “are still suffering from the coronavirus”.
Some economists expect the US central bank to start slowing down its asset purchase program by the end of this year. But they say a The interest rate hike may not take place until 2023.