"China's economy is still under an investment-driven growth pattern from its excessively rapid growth of loans in the past five months," Nicholas R. Lardy, a senior researcher with the U.S. Institute for International Economics, told a group of Chinese economists in a seminar.

    Lardy said the Chinese government was to be commended for its decision in December 2004 to readjust the relationship between consumption and investment, transforming the economic growth pattern to more dependence on enlarging domestic consumption demand, and less on increasing investment and the trade surplus.

    "But I don't think China has really begun to adopt a way to the result that the government desires," said Lardy.

    The excessively rapid growth of fixed assets investment also worried the Chinese government. At an executive meeting last week, the State Council, or the central government of China, called for strict measures to restrain illegal land use and rapid increase in loans to control the growth of investment.

    Lardy, a long-standing specialist on China's economy, suggested the government reduce investment on infrastructure, while investing more in public health care, education, pensions and social welfare, so the public had more confidence to use their savings and increase consumption.

    He also warned that China's inflexible currency policy would further expand the trade imbalance, increasing the risks of trade disputes with the United States.

    But Lardy also noted that most of China's exports to the United States originated from other low-cost economies. China was the final point of assembly, and the imported content of its exports to the U.S. was very high.

    "When the US trade imbalance with China is up, its imbalance with other countries and regions in east Asia is down," said Lardy, calling it a "relocation of final production".

    Lardy was confident China would continue its rapid 27-year growth.

    He believed China's openness would increase its competitiveness in global trade, and it would maintain its advantages of a high savings rate, vast labor force and increasing investment in human resources to maintain rapid economic growth in the next decade.

    Lardy has gained widespread attention in the United States for his series of books on China, especially this year's "China: The Balance Sheet: What the World Needs to Know Now About the Emerging Superpower." Enditem