Friday July 3, 06:13 AM
China need not fear inflation -ex c.bank adviser
BEIJING, July 3 (Reuters) - China's rapid money and credit growth will not fuel inflation, not least because the domestic savings rate remains very high, a former adviser to the People's Bank of China, Li Yang, said on Friday.
Some economists have expressed concern that a record burst of bank lending is feeding into money supply growth and will eventually generate inflation. Others are more worried that part of the flood of money is finding its way into the property and stock markets, inflating new bubbles.
'Inflation will not become a major threat to China's economy in the future,' Li, a senior researcher at the Chinese Academy of Social Sciences, the government's leading think tank, told a financial forum.
Li said the government was right to favour an active fiscal policy to prop up growth in the face of shrinking exports as household consumption was unlikely to become a driver of growth.
Fan Gang, who holds the academic seat once occupied by Li on the central bank's monetary policy committee, said China needed to be prepared for two to three years of very weak growth in major industrial economies as consumers rebuilt their savings.
Taking issue with the orthodox prescription that China should emphasise the development of the services sector, Fan said it was unrealistic to expect a big boost from services given China's current level of development.
At this stage, China would do better to keep improving its manufacturing sector, which would naturally spawn more service industries as incomes and wealth increased, Fan said.
(Reporting by Aileen Wang and Alan Wheatley; Editing by Chris Lewis)
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