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Economy

No signs of immediate crisis, but China is suffering 'delusion' like 1980s Japan

Bank of Singapore economist thinks 15 years of Xi would not fix problems

Richard Jerram, chief economist at Bank of Singapore at right, started his career as an economist in Tokyo during the bubble in the late 1980s. (Photo by Mariko Tai)

HONG KONG -- China's better-than-expected economic performance in the first half of this year, together with Beijing's repetitive pledges to push through economic reforms, have helped to ease concerns about the country's future among some economists. However, others are still far from convinced -- especially those who closely watched Japan's bubble economy that started in the late 1980s.

Speaking immediately after a press conference held in Hong Kong on Monday, Bank of Singapore's chief economist Richard Jerram said that China was suffering from "a delusion" about how to fix its economic problems. Instead of pushing reforms to transform its economy to consumption-based growth, he expected that the nation would continue to rely on a government policy-supported growth model with credit continually expanding at "whatever number necessary to maintain the acceptable [economic] growth rate at 6-7%."

Bank of Singapore is a private banking arm of Oversea-Chinese Banking Corp. (OCBC).

Growth fueled by credit, according to Jerram, is the opposite of how China should approach its problems. "What you have to do is clear," he said. "You have to choke cheap credits to inefficient companies."

For China, pain would be unavoidable in pushing through reform, said Jerram, as it would not only be politically, but also socially "very difficult." He pointed out that "you need a very broad range of reform if you are going to fix this, but ... we haven't seen any signs of that scale of reform happening."

Although Jerram believes that China's credit expansion is at a manageable level and that the nation is less likely to face a financial meltdown, he notes that avoiding painful reform will likely lead to a long-lasting economic stagnation as it did to Japan.

China's current delusion resembles what he saw in Tokyo in the late 1980s when the nation was going through an economic bubble, which eventually burst in the 1990s. Most of Japan's growing credits were held domestically, just like today's credits in China, he said, and this is another reason why he believed that what awaits China is most likely long-lasting economic stagnation.

Meanwhile, there is widespread expectation that President Xi Jinping will focus on pushing reform after the Communist Party hosts this fall its National Congress, held every five years. But as China's economic situation is tied up with so many different interests, Jerram sees Beijing's willingness to tackle the problem as low. "I don't know if it's really possible," he said. "Even if it is to say to give him another 15 years or something ... I still don't know if you can fix it."

While Jerram feels that China's reform challenge is even higher as the role of the government is much larger and country is poorer than Japan was in the 1990s, he also sees the nation as better positioned as its economic growth is stronger than Japan's was.

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