China's growth still to benefit world economy

Despite its decelerating economy, China's impact on the world will remain very large, said a chief economics commentator for the Financial Times.

This is because China's economic base is much bigger now and its growth rate will continue to be faster than the world's rate over a long period of time, Maritin Wolf told Xinhua in an interview.

China has been a major driver behind the world economy over the past years, pushing commodity prices higher to increase revenues of relative producers and demanding more industrial goods from manufacturers like Germany and Japan, Wolf said.

"China's economic performance was exceptional over the past four years, considering the difficult global environment with an enormous global financial crisis in 2007 and 2008 and a continuing slowdown in the developed countries," he said.

As China's export surplus diminished dramatically, it had to replace the lost overseas demand with a huge increase in domestic demand, which, in his view, has been "surprisingly" successful.

Yet costs of that achievement have been quite high, he noted, including enormous credit expansion in domestic investment and housing construction in 2009 and associate financial bubbles.

"Those distortions have left China with large policy challenges in the next few years," he said.

Wolf expects China's economy to continue to expand but at at a lower rate in the coming years, as the country starts to shift from an export- and investment-driven economy to a more consumption- and environment-oriented economy.

"The share of investment in the GDP will certainly fall, and it's very difficult to raise consumption to offset the negative impact on growth rate by weakening investment. Thus maybe China would grow at a lower-than-expected rate during some period, say 4 to 5 percent."

"This rebalancing can take decades to happen... however, if done in the right way, will certainly generate a better environment and a better standard of life for a majority of ordinary Chinese people," he added.

Wolf said that China, already a highly industrialized economy with the share of its industrial sector in the GDP higher than any other country, will see the fastest growth in its service sector in the next stage.

In his opinion, private businesses will be the dominant providers of services. "Given where China's development stage has reached, the natural development is to have more private, productive businesses in the economy."

He expects the Chinese government's role as a central organizer of production to diminish gradually, while its role in other aspects, like a provider of regulation, public services and public consumption in health care, welfare and education, would strengthen.

"I'm not advocating a complete liberalization of economy or the financial sector. I don't think capital control should be abolished, either. What I'm saying is that the Chinese government needs to have a reformed role, not a smaller but a different one," he said.