Confidence, patience needed in understanding Chinese economy: Aussie economist

CANBERRA - When understanding Chinese economy, people should have more patience and confidence as the fundamental elements of the world's second-largest economy are still strong, said Australian economist James Laurenceson on Thursday.

Laurenceson, who is the deputy director of University of Technology Sydney (UTS)'s Australia-China Relations Institute, made the remarks when speaking with Xinhua in an interview hours after Chinese Premier Li Keqiang delivered a keynote speech at the Boao Forum for Asia in Hainan, China.

Laurenceson said China has been trying to conclude the negotiation on the Regional Comprehensive Economic Partnership (RCEP) by the end of 2016.

"RCEP will be a very important trade deal, as it will tie up all the small bilateral trade agreements in Asia," he said.

Lots of Australian businesses are reluctant to use Australia's bilateral free trade agreements because they are too complicated.

Laurenceson said the RCEP is targeting to solve the problem and offer a regional framework to combine bilateral trade agreements together.

Also, involving China and India in a regional trade agreement will have great advantage because those are where the growth, trade are coming from.

Laureceson said the supply-side reforms that China is undertaking especially in the last three months are aiming to improve productivity.

With a relatively high interest rate compared to some other countries, China might have implemented loose monetary policy and ramped up demands.

But China chose not to do so because China understands that's not sustainable approach, which will not lead to growth in the long run.

"Structural reforms are hard to do ... Every country finds it tough. No country has taken structural reform quickly," Laurenceson said, suggesting more patience in watching China's economic reform and emphasizing the fundamentals of Chinese economy are still very strong.

"Reform has to happen, but it doesn't have to happen overnight. That's been the Chinese approach to reform for the last three decades ... There's got to be progress, but it doesn't have to be rushed. Patience is very helpful."

The theme for this year's Boao Forum is Asia's New Future: New Dynamics and New Vision.

Laurenceson is amazed by the development of Internet economy in China, which he said is more successful than any country in the rest of the world.

He said the newly developed Fintech (Financial Technology) is a good example that Chinese government has allowed private companies to enter a sector which traditionally is dominated by state-owned banks.

"Unlike many people from the United States have thought, privatizing State-owned enterprises are never essential for productivity growth. What you need to do is to get competition, subject them to competition," he said.

Laurenceson also agreed with what Li said in his speech that despite a difficult situation, confidence should not be waived.

More than half of China's economic growth had come from consumption and statistics from independent agencies show that China's consumer confidence is not low at all.

Laurenceson said two factors would be key to keep up the consumer confidence. The first is employment. He noted that some 13 million new employment have been created last year when the economy's growth rate was reduced to below seven percent.

"When people have jobs, they have confidence," he said.

The other fundamental factor to help keep consumer confidence high is that the government presents a credible and realistic reform plan. Chinese consumers would expect to see a very deliberate, concrete examples of reform, he said.