Chinese economic policy stands in contrast to that of almost the entire rest of the globe, says Harvard economist Ken Rogoff.
"While virtually every country in the world is trying to boost growth, China's government is trying to slow it down to a sustainable level," he writes on
Project Syndicate.
"As China shifts to a more domestic-demand driven, services-oriented economy, a transition to slower trend growth is both inevitable and desirable." But that's not an easy task Rogoff says. "And no one should take a soft landing for granted."
China's economy grew 7.5 percent in the second quarter, matching the government's target for this year.
For China to succeed, it must drop its model of export-led growth and huge infrastructure investment, Rogoff argues.
"Consumption and quality of life need to rise," he writes.
"But, in an economy where debt has exploded to more than 200 percent of GDP, it is not easy to rein in growth gradually without triggering widespread failure of ambitious investment projects," Rogoff adds.
"The stakes are high. If Chinese growth collapses, the global fallout could be far worse than that caused by a normal U.S. recession. China's growth rate remains perched at a very high level, so there is a great deal of room to fall. The potential vulnerability of Western exports and equity prices is massive."
Meanwhile, economists say that after a string of recent weak economic data, the government must decide whether to inject stimulus,
The Wall Street Journal reports.
That could include an interest-rate reduction or a lowering of capital requirements for banks. "There's a bottom level they won't tolerate," Julian Evans-Pritchard, an economist with Capital Economics, tells The Journal. "But we haven't hit it yet."
This week, the World Bank cut its growth forecast for China to 7.4 percent this year and 7.2 percent next year from 7.6 percent and 7.5 percent previously.
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