(chinadaily.com.cn)
Updated: 2008-02-25 14:17

CD: Have you published anything to document what you have done in different cities?

DD: We've done it for some areas. You asked me the most important, and I said air pollution. If you had asked me ten years ago I think I would have said water pollution. But we've had a lot of involvement in cleaning up different water sources over the last ten years. So we have produced some nice studies showing the progress, but also taking a frank look at what are the remaining problems in water supply and sanitation. Those you can get online. We have a good Chinese language website, and we're really trying to put a lot of information in the public domain.

CD: In many ways people are concerned about 2008 and they see the debt crisis in America and they feel the pressure even from the grocery market - things are getting more expensive. And also, China had a bull run in the stock market for almost a year and they know it's not going to last forever. And they are kind of wondering, what's happening now? What can the Chinese economy do to help out the world?

DD: Well, we remain cautiously optimistic about the Chinese economy. The United States is slowing down, the world economy is slowing down, and that will have some effect on China, so we marked down our forecast. For 2008 we're forecasting 9.6 percent growth, but that's still a very healthy rate of growth, and I think if China achieves that, that's really very positive, and China will be the main source of growth in the world economy. If it gets anywhere close to that forecast, China is going to be the main source of growth for 2008. So China is making a contribution to keeping the world economy healthy. There are some risks. You mentioned inflation. They just came out with the January number. Prices were, I think, 7.1 percent higher than a year before. That's the highest number in ten years, so that's a little bit disturbing. But there are some special factors there. The snowstorms in the second half of January, they were already affecting food supplies, so some food prices shot up quite a bit. And Spring Festival, right at the beginning of February, there's a lot of shopping for Spring Festival and late January. So, I would expect in February we'll see some moderation of inflation. So I'm not too worried about inflation, but I think it's smart for the government to be somewhat concerned. And there there's an obvious measure. Whenever the government lets the exchange rate appreciate a little bit against the dollar, that puts a dampening effect on inflation. So that's the obvious thing to do is just a little bit more appreciation, will help keep inflation under control. Growth looks pretty good. The risk would be if the US recession - if the US slowdown - is much more serious than people expect, then that will affect China. But still China has a lot of options. Right now its fiscal policy is quite tight, so if there's an unexpectedly large slowdown in the world, China can come in very quickly with some fiscal stimulus. It could pump more money into the rural economy, rural health and education - this would be very good for social issues, and it would be good for the macro economy in that circumstance. So China's got a lot of options. That's why I'm cautiously optimistic. Under any scenario, 2008 will be pretty good.

CD: But the healthcare reform and retirement program expansion: none of those things seem to come along very quickly.

DD: They're very complicated. We're helping design some of the rural health reform. We have a rural health project we're working on, which would be kind of a demonstration project trying out some new approaches in different poor counties. But it's very difficult. How do you organize health services in a market economy for a poor rural population? It's not easy.

CD: What is the most convenient stimulus?

DD: I always think the most convenient stimulus is to put money in people's pocket quickly. So while I think it would be good - spending money on rural education - would be good for the farmers, that may not be the fastest stimulus to the economy if there needs to be a stimulus. Tax reduction is usually the fastest. China has a pretty high value added tax. And Chinese people are very practical. Imagine if you announced that you were cutting the value added tax in half for the rest of 2008. People would run to buy refrigerators and all kinds of furniture and things, right? So I think tax cuts, temporary tax cuts, are always the best stimulus.

CD: Tax cuts for small enterprises?

DD: Ah, if you can target tax cuts to small enterprises, you're right then. You create jobs, you get a double benefit, because you give a tax break to the entrepreneur, and if it works you quickly get a lot of job creation and people get jobs and they get money in their pocket and they go out and they spend it. So if you can target the tax breaks to small and medium firms, then that can be good, too. The problem is, when the economies start slowing down, there's a lot of uncertainty and people are wondering, should I invest? That's why if you suddenly say, oh don't worry there's a tax break for your investment, if you're worried the whole investment may be a bad idea, the tax break doesn't sweep it very much. That's why if you cut the value added tax, I guarantee you people are going to spend more money, whereas if you cut the tax on business, they may look around and say, this is so uncertain - I'm still not going to invest.

CD: Thank you very much. Do you want to make any comments to our viewers?

DD: So I do think China's economic reform is the most important even that's happened in this last twenty or thirty years. I would argue that fifty years from now, historians will say that the most important thing that happened at this period of history was China's reform and opening up. And I think China's gotten great results from the reform and opening up.