China's economy will likely have an "imported soft landing" this year due to a slowdown in world economic growth, Morgan Stanley's chief economist for Greater China, Wang Qing, said yesterday.

 

With the probable United States recession, China's government may ease tight monetary controls in the second half of this year to help the economy achieve a stable landing, Wang said.

 

"The slowdown in world economic growth, mainly a result of US credit turmoil, is actually a piece of good news for China," Wang said. "It helps the country to be able to cool its economy without curbing domestic demand, which happens with a tight monetary policy."

 

Morgan Stanley expects China's policy stance will remain tight through the first quarter or the first half of this year, and then turn neutral or ease for the remainder.

 

This will depend on the pace of the US economy sliding into recession and its impact on China.

 

The US Federal Reserve slashed its benchmark interest rate by 75 basis points to 3.5 percent on Tuesday, a clear sign of American concern over a recession. Morgan Stanley forecast China's gross domestic product will grow by 10 percent this year, with the consumer price index standing at around 4.5 percent.

 

Wang believes there will be no aggressive rate increases this year because a weakened external demand should help contain inflationary expectations and ease the burden of relying on lifting interest rates.

 

"In the event of a deeper-than-expected external downturn, we expect the authorities to stand ready to relax existing macro controls - as the first line of defense - and even pursue expansionary monetary and fiscal policies, if warranted, to head off any risk of a major economic downturn," said Wang.

 

If the authorities were to carry out austerity measures, China's economy may have a hard landing because it will suffer a serious double-blow impact with domestic demand-oriented and export-oriented sectors being equally affected.

 

(Shanghai Daily January 24, 2008)