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Analysts warn of bumps in road

(China Daily)
Updated: 2010-01-12 07:46

The worst of the financial crisis may be over but the road to recovery is unlikely to be smooth.

With many economists warning of a dreaded "double dip" - when one recession follows another after a brief period of recovery - and the shock of the Dubai crash still fresh in the mind, now is not the time for over-optimism.

"A double dip is possible," said Ardo Hansson, lead economist for the World Bank in China.

Although it is expected to register another impressive growth rate in 2010 thanks to its entrenched recovery track, China must still draw lessons from the global crisis to better steer its economy, analysts say.

There are two essential lessons, according to Hansson: that regulation and supervision should be enhanced, and that credit growth must be controlled at a proper level to ensure healthy economic development.

China initiated a massive stimulus package worth 4 trillion yuan ($586 billion) in late 2008 to combat the financial crisis. New bank loan growth was exceptionally strong last year and, at the end of last month, is believed to have hit 9.5 trillion yuan.

Attempting to stimulate the economy with increased lending is a "risky strategy", said Hansson.

China was justified in launching a liquidity-increasing strategy when the global slowdown hit the country hard in mid-2008, but now is the time to gradually implement an exit strategy, he said.

The ample liquidity in the economic system has pushed up China's asset prices and could trigger serious inflation, analysts have warned.