ADB confident in China economy, eyes green development

The visiting President of the Asian Development Bank (ADB) Takehiko Nakao told Xinhua on Thursday that the ADB is confident in China's economic growth and will deepen collaboration with China to achieve "ecological civilization" through green development in the coming years.

Nakao made the remarks in an exclusive interview with Xinhua at the end of his three-day visit to China.

Nakao was elected as new ADB President in April, 2013. During his short stay in China this week, he met with Chinese Vice Premier Zhang Gaoli on Tuesday and signed two Memorandums of Understanding (MOU) with the Ministry of Environmental Protection (MEP) and the National Development and Reform Commission (NDRC) on Wednesday.

STEADY GROWTH IN 2014

China's economy seems to have lost some steam in recent years. However, Nakao said China has not entered a low-growth period, but is still in a stable period.

"With a projected GDP rise of around 7.7 percent for 2013, China's economic growth has again been exceptionally high by global standards," he said.

According to ADB's latest forecast, infrastructure investment will boost the outlook for China by 0.1 percentage point to 7.5 percent in 2014, compared with the October ADB forecast.

Nakao said growth of around 7 percent might be sufficient for China to achieve its economic and social development objectives.

The structural reforms proposed by the recent party plenary session will likely have a positive impact on China's private consumption and private investment in 2014, he said.

The Asian economy as a whole is expected to witness growth of 6.2 percent in 2014, as growth momentum in advanced economies will benefit developing Asia and the end of U.S. quantitative easing (QE) policy will not have a major impact on Asia, he said.

According to Nakao, developing Asian countries face similar challenges in maintaining financial stability and sustaining growth. China should pay more attention to industrial overcapacity and pollution through structural reforms, he said.

GREEN DEVELOPMENT

The heavy smog spreading in many Chinese cities has grabbed the attention of the ADB. The MOU signed between ADB and MEP focuses on prevention and management of air pollution, water pollution, soil pollution and ecosystem degradation.

"Though heavy smog control is a long-term mission, if people become serious, it can change more quickly than imagined," said Nakao.

He said in the short term, Chinese cities need early warning systems and emergency response programs to identify and tackle periodic peaks in emissions, including imposing temporary restrictions on key emission sources and advising the public on temporary measures to reduce exposure to emissions.

A long-term approach to sustainable urban transport along with creation of low-carbon public transport systems are needed, including user-friendly cycling and pedestrian facilities, which offer a more sustainable alternative to private cars, he said.

Nakao stressed that stricter monitoring and enforcement of emission limits is also needed in heat and power generation, industry and the construction sector, along with programs to replace high-emission plants with low-emission facilities.

Over the longer term, China needs to expand its institutional capacity for controlling air pollution and to strengthen its environmental compliance and enforcement regime, said Nakao. He added that transportation pricing needs to be adjusted to fully incorporate the costs of pollution and congestion with measures such as introducing congestion pricing, drawing on lessons from cities such as Singapore.

TRANSPARENCY KEY TO CONTROL LOCAL GOVERNMENT DEBT RISK

As the former Minister of Finance of Japan, Nakao also noted China's latest move in fiscal reform.

Nakao said China's local governments need a large amount of financial input to meet the demands of urbanization, which brings new risks of rising local government debts and overzealous land sales.

"To keep the local government debt under control is very important," said Nakao, noting that the Chinese government should improve the transparency of local debts and set up a taxation system for local governments to create more fiscal space for local governments.

Apart from improved efficiency of tax administration and better use of property taxes, emphasis should be put on direct taxes, such as the personal income tax, said Nakao.

Consideration should also be given to strengthening the policy, legal, regulatory, and institutional environment for public-private partnerships to help local governments attract infrastructure investments, he added.

Commenting on the ongoing reforms in China, Nakao said it would be a comprehensive and well-balanced reform, with some effective experiments, such as liberalizing the interest rate of lending.

Nakao suggested that China should make the market play a decisive role in allocating resources, while the government should play a role in service, policy-making and guidance to the market.

"When you find the right direction to launch the reform, it is more important to have it well implemented," said Nakao.