by Xinhua writer Chen Wenxian
LONDON, Nov. 18 (Xinhua) -- China should have a gradual exchange rate adjustment process, which will be potentially desirable for everyone, said John Hawksworth, head of macroeconomics of Price Waterhouse Coopers (PWC), one of the world's four largest accounting firms.
He told Xinhua in a recent interview that the exchange rate adjustment should happen in a gradual way rather than through dramatic ways. Otherwise, that could destabilize economies, not only Chinese economy but also other economies.
CHINA TO GROW STRONGLY
Hawksworth predicted that China's economic growth would be around 8 percent this year and it is expected to go up to around 9-10 percent in 2010.
In his view, that is because China has still remained in a strong financial and economic position through the global financial crisis, and the country is shifting its development pattern from export dependence to domestic demand.
China is in a position of having quite a lot of financial reserves and it does not face the position of huge budget deficits like other countries, such as the United States and the United Kingdom, he said.
"Chinese exports have obviously been hit by the recession, but that has been made up by the strong domestic stimulus by the government, which has kept government spending and investment growing quite strongly," said Hawksworth.
"That has honestly meant that China is being protected from global recession to some degree at least in terms of its own economy," he said.
At the same time, the economist also pointed out that China is still facing some challenges in the process of stimulating the domestic demand. "In the longer term, the challenge is not just a shift in investment but also the shift of greater consumption," he said, "because consumer spending in China is still quite small as a share of Chinese GDP when compared with the U.S. or Europe."
He said that the shift to more consumer spending would not happen overnight. "It will happen over the next 10 or 15 years rather than the next one or two years," he said.
POWER SHIFT
It is widely believed that the world's economic power is shifting from West to East as emerging economies such as China and India are developing with a rapid and sustainable growth.
Hawksworth said that the power shift has already been happening over the past 20 years or so. "It's honestly got to the point where economies like China and India are much more important in the world economy now."
He said that the shift is inevitable because the productivity gap between China and the United States, for example, which used to be very large, has been reduced considerably.
Emerging nations have become much more productive due to investment in new technology and infrastructure and so on, he added.
"This process is only partly completed, this will be continuing," he said. "It will take another 30 or 40 years until the process is complete."
According to the economist, the recent economic recession, however, accelerated the power shift and also prompted the shift from the G7 to the G20.
"You can't really manage the world economy without involving countries like China and India and Brazil and so on because they have got an increasingly important role to play," said the economist.
GLOBAL ECONOMIC RECOVERY
There are signs that the global recession has bottomed out and some economies have begun to show positive growth again. However, the year of 2009 as a whole will still see negative growth in the world economy.
Hawksworth forecast that the global growth will return in a positive way, maybe 2 percent, next year.
That is mainly because the global economy has been supported by the fiscal stimulus and the loose monetary policy. For example, the interest rates have been pushed almost to zero in most of the major economies.
The economist did not show much optimism over the current recovery. He said that both consumer confidence and commercial confidence are still pretty fragile, though they have recovered a bit.
"It is very uncertain how strong the recovery will be and there's a lot of uncertainty about the pace of recovery," he added.
So he warned that it would be dangerous to put the brakes on the stimulus before the economy as a whole is ready to grow stably.
As usual, a financial crisis will always tend to have a downturn for a couple of years rather than one or two years.
"So don't expect there to be a rapid bounce back especially in the advanced economies considering their long-term drought in the banking sector," he said, "plus the fact that governments particularly in the U.S. and the UK and some other countries have very large budget deficits."
Ultimately, those deficits will have to be paid back, which implies big tax raises in the countries with deficits and implies very tight control of spending probably over the next five years or more.
Hawksworth said the tight fiscal policy, together with the banking problems and the fact that interest rates will go back to more normal levels, would add dead weight to the active recovery.
"The recovery will probably be relatively slow especially in the advanced economies," he added.
