China's economy will continue to prosper

Editor's note: Allen Franklin, Nippon Life Professor of Finance and Economics at the Wharton School of the University of Pennsylvania, talked about the current situation and outlook of the Chinese economy, pointing out that the world's second largest economy will continue to boom and contribute to the global economy.

China Daily: What do you think of China's present economic situation? Is China entering an era of slower growth? Is the slow GDP growth beneficial to China's long-term economy?

Allen Franklin: I think growth will be slower than it has been in the recent past, maybe around 7-7.5 percent. I think the economy will continue at this kind of rate for the next year or two. It is slow relative to the last few years but faster than any other major country. Overall there are some weaknesses in the economy. Local government finance needs to be reformed. Many do not have the funds to cover payments on loans in independent entities they set up to borrow funds from banks. Either the central government needs to step in or they need to provide them with a source of income. The government also needs to restrict credit somewhat to slow down the rise in property prices. The recent liquidity squeeze seems designed to do this. I think it is beneficial for China's economy to grow at this somewhat slower rate as it is more sustainable.

China Daily: What contributions has China made to the global economy?

Allen Franklin: The Chinese economy has contributed greatly to the global economy. It has helped recovery from the global crisis.

China Daily: How do you see China's economic outlook in the short-term and in the long run? What challenges or problems lie ahead for China's economy?

Allen Franklin: In the long term I think China's economy will continue to prosper. The government has done a very good job for the last three decades. I think the new leadership will continue this.

China Daily: Would you offer some suggestions or proposals on the Chinese economy?

Allen Franklin: I think it is important to move ahead with opening the capital account in China and after that making the RMB convertible. This will allow the government the foreign exchange reserves and provide more credit to small and medium sized enterprises. The government appears to be pressing ahead with this. The regional banks should be encouraged to grow and provide credit to private firms.