Ebbing food price inflation serves economic growth

SINGAPORE -- The moderating food price inflation in China is leading to more room for consumption growth, said Carl Weinberg, chief economist at High Frequency Economics.

Speaking at an investment conference in Singapore on Wednesday, Weinberg said the significant food price inflation in China is like "a massive fiscal stimulus".

The majority of the Chinese population still spend 35 to 45 percent of their income on food, and a moderation in food price inflation means they will have more to spend.

The consumer price inflation in China has been moderating in recent months. Latest official statistics show that the food price inflation fell further to 2.5 percent in September from 3.4 percent in August, though the non-food price inflation rose to 1.7 percent from 1.4 percent. The producer prices fell by 3.4 percent, the seventh straight decline in a row.

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Weinberg had said that it takes some time for the effect to materialize and provide the cushion for the Chinese economy, which faces the prospect of a soft landing.

The economist said he expected the Chinese economy to bounce back to faster trend growth later, citing the ongoing process of modernization and urbanization in China.

Economists at the Skybridge Alternatives Conference, or SALT, were divided over the near-term outlook for Chinese economy but agreed that the medium- and long-term outlook was bright as the developing economy undergoes the transition to a consumer economy.

Nouriel Roubini, the doomsayer economist known for predicting the United States subprime crisis, said the Chinese economy may face near-term challenges such as the debt problems of the local governments and the growth of consumption not fast enough to compensate the loss from declining net exports in the short run. These might lead to a hard landing in late 2013 or 2014, he said.

Richard Koo, chief economist at Nomura, said China has a bright future but needs to upgrade its industries as the oversupply of cheap labor gradually comes to an end and the wages increase.

But Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, said he was confident that the Chinese leadership would be able to manage the challenges as they are not troubled by policy paralysis.

The low contribution of consumption to economic growth also means that China has ample room for improvement, he said.

Some of the economists were pessimistic on the global economic outlook. Koo said the world was still in a "balance sheet recession" as the fundamental problem is the private sector undergoing deleveraging and repairing their balance sheet.

He said what happens to almost the entire western world is similar to what has happened to Japan since the 1990s. The problems will not be completely solved until the private sector finishes repairing its balance sheet.

"It's not the budget deficit we should be worried about. It's the private sector," he said. "All this debate is totally misguided. The private sector has a huge balance sheet problem. They have to repair it, they have no choice."