China's financial reform successful: Howard Davies
Updated: 2007-07-06 17:23
China saw the consumer price index grow 3.4 percent in May and it is expected to maintain a high level until October. Asked about his suggestions to the central bank in controlling inflation, the former deputy governor of Bank of England said the 3 percent or so inflation is rather low compared with the rapid economic growth China is going through, and with developed economies. The central bank needs to use interest and exchange rates leverage in combination to address the excessive liquidity problem, he said.
Sir Davies disagreed that speculative international "hot" money has pushed up China's property prices, to bet on the renminbi's appreciation. Davies said such a conclusion is groundless as there is no available statistic to prove how much international money has contributed to the price rises. In addition, the property prices in China, considering the rapid economic growth, are rather low, especially compared with international standards.
"(The) exchange rate of yuan against US dollar is rising fast, but with other currencies, it remains stable," Davies said.
On China's plan to invest part of its mounting foreign exchange reserves through the state investment company, Davies said the idea of "diversification" is in general "good" as it may reduce risks from holding a single currency as the country's "treasure". China could learn from Singapore's experience, he said.
But it is wrong to pursue diversification at all cost, Davies believes. "The top priority is still on stability," he said. He did not think the recent price plunges in Blackstone shares, the US private equity firm China's state investment company has invested in, means a failed investment. From the long-run perspective, a strategic or large shareholder earns from the profitability of the company, rather than from speculation on ever-changing share prices, he said.
Finally, the director of LSE expressed his willingness to train more Chinese academics and officials at his school to better aid the development of China's economy. With the summer schools launched in Beijing and a new Confucius institution in London, LSE will welcome and educate more Chinese and international students interested in Chinese studies, Davies said.
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