Bernanke gives prescription for China economy

Yi Gang, deputy governor of the People's Bank of China, discussed China's ongoing economic restructuring with Ben Bernanke, former chairman of the Federal Reserve, in Washington on Thursday.

"I'm pretty confident that we'll have 6.5-7 percent annual GDP growth this year," Yi said.

Bernanke said his recommendation to China is to focus more on targeted fiscal policy: "Use fiscal policy as a way of achieving the level of demand, which doesn't have quite the negative effects on the currency that monetary policy can have."

"I would say that we have a solid foundation to continue to fight this weak demand, and for the global economy, we can, through macroeconomic policy and through reform, restore trade and restore growth," Yi said.

Yi provided an early assessment of China's transition. "Consumption is relatively stable, but last year, the contribution of the consumption to GDP growth was about two thirds. So all these indications point to the direction that China is already on the transition from heavy industry and export-oriented economy to a consumer-driven economy," Yi said.

This year, China is going to increase the deficit ratio to 3 percent of GDP, which is more than 2 trillion yuan, Yi said.

"The proactive fiscal policy in China is very important," Yi added.

"In order to create a more consumer-led economy, you need to improve the social safety nets, increase disposable income, and re-allocate labor from the heavy industry sector to the service sector. I think that getting the monetary-fiscal mix right, in order to support the currency objectives is consistent with the reform goals," Bernanke said.

The Chinese economy could see some of these consumer-oriented policies implemented in the future, but it will require time, Yi said.

"It will take several years to finish this process. The difficulty is that China's saving rate is relatively high, probably one of the highest in the world," he said.

Yi emphasized a balance between the urgency of China's economic woes and not overreacting.

"If you really want to do reform, it is difficult to do," Yi said. "People can use quantitative easing, they can have a fiscal deficit and try to pump up the economy in a short time and have a quick result. But compared to real structural reform, you have to solve labor-market problems; you have to solve a lot of fundamental issues. I think to not reform is a risk, and to overreact is another risk."

Allan Fong contributed to this story.

(China Daily 04/15/2016 page2)