China Needs Reform to Shift Growth from Speed to Quality, Experts
Slower growth can lead to a much healthier growth path for China if the economy begins to rely less on investment to drive growth, but in order to do so reforms need to be accelerated, said the two economists of the independent business membership and research association based in New York.
"The shift from investment-led growth to consumer-led growth could also bring about less volatility in the business cycle," they said in a written interview with Xinhua.
A China that grows at a slower pace but buys more from the rest of the world will be positive for the global economy, according to van Ark and Polk.
"The current driver of China's slowdown is not reform," they said, adding the moderate growth is a natural consequence of development due to demographic factors as well as a result of the catching up process.
They proposed that China should move forward more quickly with reforms and on a larger scale so that the world's second largest economy can reap dividends from them sooner.
With regards to the Chinese government's recent move to rein in financial risks, the two economists believed it is a very important element of reform.
But they expressed concerns over the expansion of financial loans in China which were not channeled into the real economy.
"In order to fundamentally reduce financial and credit risks, overall monetary growth must slow. Otherwise, money will continue to find its way into the shadow banking sector, despite administrative restraints," they said.
Slowing monetary expansion will drag down overall economic growth, but again this will lead to a much healthier growth path, they argued.
Commenting on a report posted by HSBC recently, saying that 260 million migrant workers in China to settle into cities will promote consumption and bolster growth, van Ark and Polk believed that the massive number of workers will boost demand for the rest of the world.
Meanwhile, van Ark and Polk warned of the risks of China's urbanization, saying geographical expansion of Chinese cities may have a negative impact on environment.
"A greater focus on building efficient and green cities, rather than emphasizing the speed of urbanization, will make growth healthier. Emphasizing job creation in the service sector in urban spaces will help sustain income growth despite lower GDP growth," they said.