"Chinese economy might suffer ups and downs, but its long-term prospect remains bright, Daniel Gros, director of the Centre for European Policy Studies (CEPS), told Xinhua.
The senior expert painted a much rosier picture for the world's second largest economy than a handful of experts in the West who have been claiming that the economy was about to collapse amid signs of slowing down.
the "accumulation of human capital and physical capital" as the fundamentals that would guarantee the Chinese economy a bright future in the long run.
"Education of the population is very strong and your people have very high savings. If you take these two things together, you can have another 10 to 15 years of what is called 'extensive growth'," Gros said.
He attributed the current slower growth to the fact that "the grow rates over the last six or seven years for the Chinese economy were above potential, so the next seven years maybe below potential."
"As the potential for China's annual economic growth rate is 7 to 8 percent, maybe it would be less than 7 percent in the next few years," he said.
"The readjustment away from investment towards consumption, the so-called rebalancing, is much more difficult than many people think. Because when you have had investment rate of close to 50 percent, that is a very slow process," he said.
The rebalancing would also be hindered by "a lot of inertia," which means that "once it goes in one direction, it tends to go a long time in that direction. That is called the accelerator model in economics," he said.
The economist expected the "spiral downward" resulting from less investment to last two, three or five years, saying that "this spiral downward is moving very slow, but very persistent."
While saying that the biggest risk in the Chinese economy is that this spiral goes down too quickly, Gros said, "The risk exists, but I don't think it will materialize." It will be very important to keep a very alert economic response by authorities to calm down the economy,and keep stability in monetary policy and exchange rate".
Source: Xinhua
