Lin suggests fiscal policy in securing growth

BEIJING - China should focus more energy on fiscal policy to reverse a slowdown, while assisting such efforts with monetary policies, Justin Yifu Lin, former chief economist of the World Bank, said Thursday.

The government should take cautious attitudes and plan well when deciding on investment projects, Lin said in an interview with Xinhua.

Lin, who just ended his four-year tenure as World Bank chief economist and senior vice president, said the investment should focus on high-return projects that can remove growth bottlenecks in the targeted sector, such as energy conservation and environmental protection as well as low-income housing.

GDP growth in China, the world's second-largest economy, slowed to a nearly three-year low of 8.1 percent in the first quarter, and the latest economic data has suggested further downside risks.

However, "I still have full confidence in the economy. As an emerging market, China still possesses great potential, which was the main cause for its success after the reform and opening-up," the 60-year-old economist said.

He said the biggest challenge that China currently faces is a slack external market coupled with an imbalanced domestic structure. The government needs to improve its policies with experience gained during the 2008 crisis.

To cope with the global financial crisis, China issued a 4-trillion-yuan ($635 billion) stimulus package, which has helped the economy, but also fueled inflation.

The current crisis is a continuation of the 2008 crisis, Lin said, adding that the European economies and the United States could possibly see a prolonged downturn like what has happened in Japan since 1991.

"How long the economic slump will continue depends on what countermeasures will be taken," he said, suggesting that reserve-currency countries and countries with large foreign reserves should jointly invest in infrastructure in both developed and developing economies, in a bid to remove growth bottlenecks and boost demand.

Lin will return to teaching at Peking University, where he served for 15 years as a professor and founding director of the university's China Center for Economic Research before starting work at the World Bank in 2008.