The current liquidity crunch in the Chinese financial market is not a crisis, but it is still a problem that could hamper economic growth, Nobel Prize-winning economist Robert Mundell said here Tuesday.
Mundell made the remarks when commenting on China's macro- economy on the sidelines of a forum held by the Universal Credit Rating Group (UCRG), a new credit rating firm jointly established by agencies from China, Russia and the United States.
Worries over a liquidity crunch have been raised as short-term interbank rates rocketed to unusually high levels during the past two weeks in China, causing the country's key stock index to dive more than 5 percent on Monday, the biggest daily loss in nearly four years.
However, Mundell warned that if the tight credit continues for a long time, it could lead to a crisis.
The credit crunch was a result of excessive lending in the past three years, as now the banks have to curb it, he said.
He said he was not sure about the credit crunch's impact on the country's economic growth in the second half of this year, but if that crunch continues, it could "definitely lower growth."
But maybe the government is willing to accept a lower growth if it gets enough debt reduced, he added, saying that a slowdown in growth is not an urgent problem for China.
