News & Reports News Year 2014 May 2014 Economists optimistic over Chinese economy

Economists optimistic over Chinese economy

BEIJING - Economists with a US think tank said the slowdown of China's property market will have a negative effect on the Chinese economy but that it will be limited.
"It will have a bad effect on the Chinese economy in the near term, but people who are worried are worried too much," Adam Borsen, president of the Peterson Institution of International Economics (PIIE), told Xinhua during an economic seminar in Beijing on Saturday.
Concerns over the housing market during the past three or four years are now well founded, with latest official data showing home prices continued to cool in some cities.
Of a statistical pool of 70 major Chinese cities, new homes in eight cities saw month-on-month price declines in April, double that for March, the National Bureau of Statistics (NBS) said in a statement on Sunday.
A string of signs has pointed to a property downturn. Last Tuesday, the real estate development climate index, also compiled by the NBS, dropped 0.61 points from March to 95.79 points in April. It has declined month on month for three consecutive months.
But a full-blown property meltdown is unlikely. "It's not the US financial crisis. It's not leveraged up and it's straight forward," Borsen said, as the down payment to buy a house in China exceeds 50 percent.
As to whether the property cooldown would deal a lethal blow to the Chinese economy, senior researcher with PIIE, Nicholas R. Lardy said, "We are definitely in a bit of slowdown, but that's probably a good thing,real-estate investment is already far too high."
Last year, household consumption accounted for about 12 percent of GDP, while the extremely high peak of that of the United States was 6 percent, according to Lardy.
The cooling down of the housing market is natural and a good thing, he said.
"If the government is successful in some of the reforms it talks about, growth could be even higher, as the reforms will increase the allocation of resources," said Lardy.
The PIIE is optimistic for the medium and long term growth of China, with huge potential for consumption, said Nicholas Borst, research associate and China Program manager of PIIE.
"The shift to consuming more without taking on debt would actually be beneficial and a sustainable new source of growth for China rather than more and more investment," Borst said.
The biggest challenge is whether the government is willing to accept slower growth, and the Chinese leadership has the patience for riding out the bumpy short term for the benefit of the long term, he added.