Beijing: China faces an ‘overriding challenge’ to restructure its export driven economy to the one led by consumer growth to boost peoples incomes which were low at present, noted American economist, Stephen Roach said.
China’s biggest problem is not inflation, but shifting its economic structure to maintain sustainable growth, Roach former chairman of Morgan Stanley Asia told Chinese news agency Xinhua in an interview.
"The biggest challenge faced by China is economic restructuring in order to shift the economy to a more balanced way that will provide sustainable economic growth," Roach said.
"In the post-crisis environment, the shift means to build a consumer-led economy, and that is the overriding challenge in China," Roach, who currently serves as non-executive chairman of Morgan Stanley Asia said.
It is not easy as residents' incomes in China remain at a low level, he observed.
"People's incomes are only 42 percent of the GDP, whereas in the US the rate is 86 percent. So the government should raise the income of the citizens, especially when China wants to stimulate domestic private consumption," he said.
China, regarded as the world factory with best of its economy oriented towards exports stipulates, has announced a new five year plan to somewhat reverse the trend.
It lays emphasis on reduced dependence on exports and reshaping the economy to be based more on domestic consumption.
China wants to do so in a hurry as exports markets were shrinking due to the European debt crisis and slow recovery of US economy.
Roach also said China should focus on containing inflation.
"Of course, that does not mean the Chinese government should ignore the risk of higher inflation," he said.
Official data showed that China's October Consumer Price Index (CPI), a major gauge of inflation, rose to a 25-month high at 4.4 percent.
"There is a certain amount of momentum to inflation, so it's likely to be a problem over the next 12 months. If the government acts quickly, it will be able to limit the problem, or else China could be facing this problem in 2012 as well," Roach said.
He suggested China should take broad and comprehensive approaches in dealing with inflation even while maintaining the medium-term goal of the shifted economic structure.
"The government has to demonstrate its resolve in dealing with inflation, and property market assets.
"It's a challenge, but I think the government is up to the challenge," Roach said.
First Published: Tuesday, December 7, 2010, 13:05