Govt given credit for accepting slower growth

Rushing to implement stimulus package would have been wrong move, economist says

Although many people are concerned about the slowdown of the Chinese economy in 2014, Nicholas Lardy, an acclaimed economist specializing in China, said that the government should be praised for not rushing out a stimulus package, as many expected or encouraged them to do. [Special coverage]

"The good thing is the government last year did not follow the advice given by some to have a big credit stimulus to try to accelerate and improve economic growth," Lardy told China Daily before the opening of the annual session of China's National People's Congress in Beijing this year.

China has maintained a high growth rate for the past couple of decades, in some years growing in sizzling double digits. The growth rate in 2014, however, slowed to 7.4 percent, the slowest rate in a quarter century and below the government's growth target of 7.5 percent.

Chinese President Xi Jinping said last year that the slowing growth means the economy has entered a "new normal". Chinese Premier Li Keqiang also has emphasized many times that it is acceptable to see slower growth when the country is carrying out many of its economic reforms.

"I give the government credit for accepting a lower rate of growth and I hope that attitude and approach will continue in 2015," said Lardy, whose new book, Markets over Mao: The Rise of Private Business in China, came out last fall and has won rave reviews.

In his annual Government Work Report, Li said the growth rate is targeted at around 7.0 percent this year.

"I hope credit growth will slow further this year because the ratio of credit to GDP has risen enormously over the past three to four years. That entails a certain amount of financial risk, and the way to reduce that risk is to slow down the growth of credit, even if it means a somewhat lower growth rate," explained Lardy, who has spent most of his academic life chronicling the sea changes in China's economy. He started as an assistant professor at Yale University in the 1970s, and moved on to be director of the school of international studies at the University of Washington, and then from the Brookings Institution to the Peterson Institute of International Economy where he is now a senior fellow.

While hoping for a continuation of a slowing Chinese economy in 2015, Lardy said he would also like to see more concrete indicators of the reforms that were announced at the third plenum in late 2013.

"We've seen some progress on many of these items, but many of these are in the economic domain," said Lardy.

"The Party laid out the direction of policy a year and a half ago, and now we would expect the government body, the legislative body, to be much more concrete on what's going to be done," added Lardy, whose dissertation was about China's fiscal system of the 1950s, which later became his first book.

The Third Plenum of the 18th Central Committee of the Communist Party has promised to give market forces a bigger say in the economy and laid out a busy agenda for reform, including in the financial sector.

In an earlier interview with The Wall Street Journal for his new book, Lardy said of the Chinese economy that "it's more accurate to think of it as a market economy because the role of the state has diminished dramatically."

Lardy, 68, has kept an upbeat attitude on the Chinese economy in recent years. In an interview with China Daily last year, Lardy said China's economy is moving in the right direction, with private consumption in GDP rising in each of the last three years and a service sector growing more rapidly than GDP for the first time in a long while.