China

EU experts: China needs adaptability

By Fu Jing and Zhang Chunyan (China Daily)
Updated: 2010-12-13 08:03

BRUSSELS / LONDON - Beijing is being urged to be mindful of the volatility of US dollars, the European debt crisis, mounting trade protectionism and even growing tensions in East Asia when ironing out next year's economic development agenda.

While continuously expecting China's steady economic expansion to be a locomotive for the European economy, European experts suggested that China's decision makers should consider "room for maneuvers" in advance, and well accommodate these "external variables" while putting domestic inflation control as top priority.

"Apart from trade protectionism and currency wars, I am quite concerned about the tensions in East Asia," Giles Merritt, secretary general of Brussels-based think tank Friends of Europe told China Daily while Beijing held its annual three-day, closed-door Central Economic Work Conference, which ended on Sunday.

Merritt said he hopes these tensions will be contained and not escalate to a level to affect regional safety and economic prosperity.

Meanwhile, the US Federal Reserve Bank last month expanded its asset purchase program to buy $600 billion of treasuries in six months in an effort to bolster the economy.

The measures may prompt US legislators to draft trade legislation with some countries and pressure China to appreciate its currency.

In Europe, the debt crisis continues to unfold amid the signs of economic recovery.

David Fouquet, the director of the Brussels-based Asia Europe Project Information Service, said Beijing's policies and initiatives have already been of tremendous help to Europe since the beginning of the international financial crisis in 2008.

He also said that visits to Europe by President Hu Jintao, Prime Minister Wen Jiabao, Commerce Minister Chen Deming and others since then have been not only symbolic, but also concrete in that they resulted in contracts, joint ventures and investments that will benefit both Europe and China.

"Unfortunately, much of this has been lost on many European officials and the public because of high-profile controversies ranging from currency exchange rates and trade deficits to politicized issues such as human rights and the Nobel Prize," said Fouquet.

"The result has been a gap not only in rhetoric and policies, but also between EU member states and the central EU institutions regarding China," he said.

Fouquet further explained that the EU has chosen this moment to get impatient, addressing more criticism and making more demands of China, while many member states have taken a more conciliatory approach and been rewarded with more benefits.

Donna Kwork, an economist with HSBC Global Research said China will play its part in rebalancing its growth and current account imbalances, but only via a broader and more gradual approach than Washington wishes for.

Rapid currency adjustments will clearly not be the chosen recipe for China's rebalancing act. Instead, Beijing's recipe will ultimately foster robust private consumption, keeping China's domestic demand growth rate above those of its main trading partners - and thus its trade surplus on a long-term downward trend, said Kwork.

As a share of GDP, China's trade surplus is not on the rise but in decline, falling from about 7.5 percent in 2007 to 4 percent last year. And Kwork expects it to drop further to less than 3 percent in 2011.

Beijing is intent on rebalancing not only the level, but also the composition of its trade and ultimately current account surplus, Kwork said.

To do this, Chinese policy makers are embarking on an ambitious plan to dramatically re-pivot the economy away from infrastructure investment toward private consumption - and from external toward domestic demand.

"In this way a better balanced and more sustainable growth path will be achieved," said Kwork.

China Daily