Confidence in Chinese, regional economies hinge on reforms

Confidence in Chinese, regional economies beyond the short term increasingly hinges on progress of reforms in China while acceptable slower growth leaves space for sustainable development, analysts and economists said. [Special coverage]

Slower growth will still be "acceptable and still sufficient to support growth around the region," said Song Seng Wun, a regional economist with CIMB Research -- a research arm of the Commerce International Merchant Bank (CIMB).

China's gross domestic product(GDP) growth in 2014 is 7.4 percent. Instead of being a cause for analysts to go panic, the growth rate is increasingly seen as natural at the current stage of development.

Paul Yip, an associate professor at Nanyang Technological University, said it is not necessary to worry.

Song said slower economic growth can be explained by rebalancing efforts to shift from quantitative to qualitative growth, which includes further opening up the economy, focusing less on investment and more on the development of the service industry, and upgrading the banking sector to better pump liquidity into all sectors.

"While I suppose analysts would like to see these reforms accelerated, the reality is that everything has to be done in measured ways," he said, "Given the different stages of development, we are all aware that the rebalance will take many years."

Chen Kang, a professor at the Lee Kuan Yew School of Public Policy, National University of Singapore, said a serious rebalancing effort would mean that growth should be allowed to be slower, he said.

"The economic slowdown will somewhat serve the purpose of forcing reforms on the way. If you prop up the growths artificially, they would think they are doing OK without the reforms," he said.

The policy makers in China have been seen as observing fiscal disciplines fairly strictly, though efforts have been made to pump liquidity into targeted sectors.

Some said that it is still too early to tell whether the reforms are producing desired results, while others said they see that the Chinese leaders are serious about rebalancing and that there is no room for failure. They agree that the long-term outlook for China's economy will be good if the reforms are carried through.

"China is a continental economy. It is all possible for China's internal demand to sustain a long period of growth, especially given that the population is still young overall, though it is aging," Chen said.

"Compared with 1998, there is more room for slower growth. Back at that time, workers were being laid off. There was also the Asian financial crisis. The state-owned enterprise reforms were underway. Even the pressure in terms of the population was larger," he said.

"Now it is different, the overall labor population is declining," he said when he compared China's current reforms with those in the late 1990s.

An economist team of ANZ Research led by Liu Ligang said in a recent report that allowing economic growth to slow down would help create more maneuvering space for China's structural reforms.

"Looking forward, we expect the service sector to contribute a larger part of China's economic growth and become the main driver. As the imports of China gradually shift from imports for the purpose of processing trade to general imports, China's imports will also lead to more growth opportunities for the global economy," said the report.

Even in the short term, there does not seem to be much to worry about.

"The businesses in the region and around the world will calibrate their expectation" in making investment to target slower growth rather than growth of around 10 percent seen in the previous decade, Song said.