Interest cuts weak in stimulating China's real economy

BEIJING - Interest cuts can improve China's market expectation in short term, but may only create limited stimulus for the real economy, an expert said Saturday.

"Considering the overcapacity in many industries, interest cuts may cause huge capital flow into stock markets other than supporting real economy," said Liu Shijin, deputy head of the Development Research Center of the State Council, China's cabinet.

He said the deflation risk in China comes from shrinking demands and excessive production instead of insufficient money supply, which is totally different from the cases in mature markets like the United States.

"Stimulus is not opposite to reforms," he said. "China's current fiscal policies are effective in improving demands through increasing infrastructure investment."

Liu believes any kind of stimulus should serve as a method to balance the economic growth speed and quality, especially against the backdrop that China is now facing "new normal" with slower growth speed but higher quality.