April 2, 2012 / 7:46 AM / 6 years ago

China growth slowdown no cause for alarm - former c.bank adviser

BOAO, China, April 2 (Reuters) - China’s economy is on track to grow between 8 and 9 percent this year, with a more moderate pace of expansion helping to contain inflation, Fan Gang, an influential Chinese economist and former central bank adviser, said on Monday.

A spate of recent Chinese data has fanned market fears of a sharp slowdown in the world’s second-largest economy, but Fan, who heads the National Economic Research Institute, a Beijing-based think-tank, said the economy is in track for a soft landing.

“I would like to argue growth between 8 percent and 9 percent is not low growth but normal growth, that will create jobs without creating inflation,” he told the 2012 Boao Forum on the southern Chinese island of Hainan.

“It’s a soft landing and growth may slow ... say, between 8.3 percent to 8.5 percent,” he said.

Fan said China still needs relatively fast growth, driven by continued industrialisation and urbanisation to help absorb more people moving from rural areas into cities.

China has cut its annual growth target to 7.5 percent this year, a pace the government hopes will give it room to push structural reforms.

Analysts broadly expect the growth target to be exceeded and few expect a hard landing. The economy grew 9.2 percent in 2011.

Annual economic growth is widely seen slowing to just over 8 percent in the first quarter of 2012. Inflation dipped to a 20-month low of 3.2 percent in February, but Chinese leaders have warned against possible risks from rising global oil prices.

China’s labour shortages have fanned a debate among academics about whether the country is near or crossing the Lewis turning point, a theory that wages in a developing nation start surging once there is a shortage in surplus rural labour.

Just over 51 percent of the 1.35 billion mainland Chinese lived in towns and cities at the end of 2011, the government has said, crossing the halfway mark after three decades of rapid growth in the world’s most populous nation.

But Fan said he believes China has yet to reach the demographic turning point as only 30-35 percent of the population still relies on farming as their source of income.

China’s slowdown is led by the country’s richer coastal provinces, but the inland provinces are catching up as many companies are moving to the interior to cut costs, he said.

That partly explains why there has been a labour shortage in coastal areas, China’s traditional export hubs, he added.

The government needs to improve the business environment for Chinese manufacturers to prevent them from moving to foreign countries, a shift could undermine employment, he said.

Data at the weekend showed China’s big factories were surprisingly busy in March as a stream of new orders lifted activity to an 11-month high, but credit-constrained smaller manufacturers struggled, suggesting that the economy is still losing steam.

The pickup in production at large factories was attributed to an expected bump as winter ends, and economists cautioned not to read too much into the stronger-than-expected figure.

That left intact a view that China’s economy, while not crashing, likely suffered its worst quarter in three years between January and March, and requires at least some monetary policy easing this year to ensure the cool down stays mild.

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