China's economy shows no much sign yet of slowing down: expert

WASHINGTON - China's economy shows no much sign yet of slowing down from the 7 percent growth rate in the first part of the year despite the latest market pessimism and growing investor anxiety, a leading China scholar said.

"I don't think there's very much evidence that Chinese economy is slowing very much. I think it grows something close to 7 percent in the first half (of the year)," said Nicholas Lardy, senior fellow at the Peterson Institute for International Economics, a Washing DC-based think tank.

"Maybe it will slow down, but I think it will take a couple of months to get enough information to have a real understanding of that development," Lardy said in an interview with Xinhua.

However, the recent depreciation of China's currency, weak Chinese manufacturing data and tumble in China's stock market have been misinterpreted by market participants and given rise to questions into the health of the world's second largest economy, the expert said.

"Many people interpreted the move on the exchange rate on Aug 11 as an effort to prop up economic growth by devaluing currencies," Lardy said. "So they jumped to the conclusion incorrectly that it (China's economy) probably goes much more slowly than we think, and it's likely to be going even more slowly in the future."

The People's Bank of China (PBOC) announced on Aug 11 to improve its central parity system, which is the starting point for daily forex trading, to better reflect market development in the exchange rate between the Chinese yuan against the US dollar. Following the decision, the Chinese currency, yuan, fell sharply in value in the following days.

Lardy believed that move is very much in the direction to increase the role of market forces in the determination of the yuan exchange rate. "At least so far, I would say the evidence supports very strongly the idea that the change in policies was the result of the suggestion of the IMF (International Monetary Fund) that the yuan exchange rate should be more market determined," he said.

"That would be a very important precondition for approving the inclusion of the yuan in the IMF special drawing rights (SDR) basket," he added. The IMF has welcomed China's move to improve its exchange rate formation mechanism, saying that a more market-oriented exchange rate would facilitate the SDR operation if yuan was included in the basket, which currently includes US dollar, Japanese yen, British pound and the euro.

"If Chinese government wanted to use exchange rates to boost economic growth because of weak exports, they should have done so a year ago," Lardy said, adding that Chinese exports only grew by 0.9 percent in the first half of 2014 compared with a year earlier.