Top Morgan Stanley economist Stephen Roach yesterday hailed the progress China has made in cooling down its overheated economy.

Speaking at a press conference in Beijing, Roach said satisfactory results had been achieved thanks to the host of macroeconomic and microeconomic policies implemented by the central government.

The Chinese economy should be expected to enjoy a soft landing if this trend continues, said Morgan Stanley's Managing Director and Chief Economist.

A successful slowdown in China would also be good news for the currently imbalanced global economy, he said.

The Chinese economy, which has been rapidly growing for years, has recently shown signs of a slowdown. Bank credit and trade growth have both shown pronounced deceleration.

Gross domestic product (GDP) growth also softened to 9.1 percent in the third quarter, compared to 9.8 percent in the first quarter and 9.6 percent in the second.

But the pace of the slowdown, especially that of industrial output and GDP, still remains very moderate, said Roach.

"More policy restraint will be required" in order to achieve a soft landing, said Roach.

A spokesman for the People's Bank of China, the nation's central bank, also said over the weekend that the Chinese economy, in spite of the cooling-down, is still facing some problems, including unstable agricultural development, pressure from rising prices and a still excessive fixed investment scale.

The central bank therefore has to consolidate the results of the macroeconomic controls and adopt monetary policy tools to adjust the economy. And it will try to fully use market mechanism to allocate social resources, the spokesman said.

It is good that the Chinese Government is committed to this policy to rein in excessive investment, said Roach. And as the State accounts for the greatest amount of fixed asset investment, the authorities should be able to bring overall investment growth under control.

"They (the government) have all the cards in their hand," he said.

The authorities also made good progress in using more monetary tools to adjust the economy, such as interest rate liberalization.

The central bank decided to raise the benchmark interest rate of one-year loans from 5.31 percent to 5.58 and that of one-year deposits from 1.98 percent to 2.25 percent on October 28, the first interest rate rise in nine years.

It also widened the range for negotiable loans and deposit rates.

In an earlier report, Roach had praised the latest interest rate rise by the Chinese central bank as "an important milestone on the road to a Chinese soft landing".

The rates adjustment is widely regarded as just the first step.

But Roach said that the demand for further economic policy restraint does not necessarily mean the central bank needs to raise interest rates any more in immediate future.

"The credit cycle has turned dramatically," he said, "We need patience to see it (the credit curbs) pay off."

(China Daily November 9, 2004)