Andy Xie shared his insights for SCMP. He says that to revive growth China must step up market reforms to tap its inherent competitiveness, while shutting out calls from vested interests for more monetary stimulus.
China’s economy continues on a downward trend. The main reason is the lack of significant reforms to implement the decision of the party Central Committee’s third plenum. Sentiment, both at home and abroad, is at the lowest point in a quarter of a century. If reforms remain just talk, not action, the downward spiral could trigger a financial crisis.
International experiences of coping with numerous crises since 2008 show that injections of liquidity have a limited and diminishing effect. Fiscal stimulus is a much more potent tool to stabilise a declining economy. And, most of all, only structural reforms can revive a troubled economy on a sustainable basis.
China needs to cope with the consequences of the misguided stimulus in the past and restructure the economy to create another growth cycle. If attention is all focused on covering up past mistakes, it merely delays the inevitable, increases the bill for the eventual tidy up, and delays the beginning of a new growth cycle. As China’s population profile ages, the delay may see the middle-income trap become a self-fulfilling prophecy.
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Dr Xie is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States. He joined Morgan Stanley in 1997 and was Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. Prior to that he spent two years with Macquarie Bank in Singapore, where he was an associate director in corporate finance. He also spent five years as an economist with the World Bank.