No large stimulus needed

Despite uncertainties in the global economy, China can stabilize its growth through reform and policy fine-tuning

The global economy is still full of uncertainties. European countries are mired in their debt crisis, and the momentum of the US' recovery has slowed. But despite this, China doesn't need a new stimulus package, such as the 4 trillion yuan ($628 billion) used to boost the economy in 2008. What it needs is multi-faceted policy fine-tuning.

Recovering exports, investment in large projects and the warming real estate market are key factors that will boost economic growth over the next six months.

Foreign trade continues to contribute to economic growth. The growth rate of imports and exports is recovering and stabilizing. The annual trade surplus will reach about $107.2 billion, accounting for 1.28 percent of GDP. Meanwhile, liquidity continues to improve, and M2 will see a 13.9 percent year-on-year gain. The contribution of consumption to GDP growth will also further improve. China's GDP growth slowed to 8 percent in the first half of 2012, but it will rebound in the third quarter, showing a U-shaped trend. The annual GDP growth rate of 2012 will register at 8.4 percent.

On the international front, the debt crisis in Europe continues to worsen, the US economic recovery is more sluggish than expected, and the international financial markets are bracing themselves for continuous turmoil. However, the fundamentals of the real economy are not as pessimistic as generally thought. The JP Morgan Global Manufacturing Purchasing Managers' Index continues to rise, and the US goods manufacturing data shows ability to expand, which will create more jobs. Based on this, we predict China's exports will gradually gain momentum, as foreign demand is better than expected. The negative effect of the decline in exports is gradually diminishing, and the foreign trade surplus remains at a relatively low level. Coupled with the US dollar's recent appreciation, it is expected that in the second half of this year the appreciation pressure on the yuan will ease.

On the domestic front, inflationary pressure reduced rapidly due to the sudden reduction of imported inflationary pressure and the cyclical downturn of agricultural prices. China's consumer price index in May dropped to 3 percent and is expected to fall to around 2.6 percent in the next four months. The basic goal of maintaining price stability through policy control has been achieved, which will give sufficient room for further policy adjustment.

The Center for China in the World Economy, at Tsinghua University, has forecast that China's consumer price index will ease to 2.9 percent in 2012, providing ample room for decision-makers to implement reforms.

On the basis of price stability, liquidity in the next six months will continue the fine-tuning trend and the level of required reserve rates will continue to be reduced. The credit environment for enterprises will continue to improve and the growth rate of investment will increase.

In the long term, China is in a period of accelerated urbanization. The urbanization process and its further optimization is the main driving force for China's future development. In addition, the construction of low-income housing, major infrastructure projects and the consumption of automobiles will help boost domestic demand and provide an inexhaustible driving force for balanced and sustained economic growth in the future.

European countries will further integrate their economies and finance, and the status of the euro will be strengthened. Therefore, China should actively and pragmatically participate in the restructuring process of Europe in an all-round way. Only in this way can China win its rightful place in building a new international order and gain an upper hand in future international competition. China should take the initiative in terms of dealing with the exchange rate issue, purchasing US debt and participating in international capital operation.

On the domestic front, the macroeconomy has shown signs of stabilizing. During the process of economic stabilization, we should refrain from introducing any large-scale economic stimulus. On the contrary, stabilizing growth should first be established on the basis of promoting reform, especially stepping up efforts in reforming the financial system and the access permission mechanism for private enterprises.

We should combine stabilizing growth with improving people's livelihoods and should be decisive about strengthening investment to boost public consumption and investment projects, such as water conservancy construction and disaster reduction capacity building.

In short, though the global situation remains volatile in 2012, China should concentrate on promoting reform, accelerating its economic restructuring and improving people's livelihoods.

The author is the director of the Center for China in the World Economy at Tsinghua University.