JAKARTA, Jan. 19 (Xinhua) -- China is facing challenges in maintaining price stability and in managing inflationary expectations this year, Secretary General of the Association of the Southeast Asia Nations (ASEAN) said.
"For 2011, I think the main challenge for China is how to maintain price stability and manage inflationary expectations. With strong growth and output gaps closing, it's only expected that inflationary pressures will continue to build. At the same time, the increase in inflation is expected due to a large overhang of money in the system as a result of massive monetary expansion over 2009-10," Secretary General of ASEAN Surin Pitsuwan told Xinhua recently.
He said that China has now become the second largest economy in the world, and the world's biggest exporter.
Among the transition economies, he said, China appears to be the most successful, with growth rates consistently high during the last three decades, higher than those of the other transition economies, such as Russia and the Eastern European countries.
"But, having experienced rapid growth over the years, the Chinese economy is now at an inflection point in my view, where overall GDP growth is likely to decelerate and inflation to accelerate, similar to what happened to Japan and South Korea 40 years and 20 years ago, respectively," he said.
However, he said, this does not mean that China's economy is losing steam.
"The slowdown in growth is a result of economic rebalancing and cyclical conditions, as the economy shifts from tradable to non- tradable sectors, and as private consumption takes on a more prominent role as growth driver than investment," he said.
In terms of policy actions, Surin said, it is in China's best interest to implement appropriate and prudent policies to sustain the economic growth momentum.
"For example, in managing inflation, it is crucial that authorities ensure a gradual withdrawal of monetary stimulus to support the medium-term growth outlook and price stability. In my view, China's anti-inflation monetary policy should remain largely credible and transparent, and should be based on current economic conditions," he said.
For example, he added, the Chinese authorities' efforts to deliberately announce a low quota for bank lending and monetary growth targets so as to manage inflationary expectations are steps in right direction.
"I believe that the inflation risk in China is still manageable, and the resolute policy responses by the authorities so far suggest that the situation is likely to remain benign in the next 3-6 months," he said.
Surin also said that another challenging aspect of the Chinese economy's transition is how to ensure that the benefits of economic growth and development are trickled down to the people.
"Despite its impressive economic performance, China's per capita income, while rising, is still relatively low and poverty is still a major social issue," he said.
In this regard, according to Surin, China is not alone.
"India, Brazil, Russia and Indonesia are dealing with the same problem. High growth is a necessary factor in developing a nation, but it is not sufficient. High growth should be followed by proper distribution of wealth so that every citizen can enjoy the fruits of development and therefore contribute in the improving economic activities," he reminded.
He said that current efforts by the government to improve income distribution in the country are worth noting.
"For example, the strong push for social housing program this year is commendable. According to data from Morgan Stanley Research, almost 90 percent of the 5.8 million units of social housing construction targeted in 2010 have been started. The strong momentum in social housing construction is likely to continue in the next two years," he said.
Currently, he added, the government is targeting a total of 18. 8 million units of housing by the end of 2012, compared to earlier target of 15.4 million units. As well, the government is moving in the direct direction to sustain growth in domestic consumption through such initiatives like initiating pension scheme and increasing minimum wages.
Surin said that as the largest player in world trade, China's emergence has enormous impact on its trading partners.
"China imports commodities and raw materials as inputs for its production activities, and exports its low-cost products. At a glance, the exports may have negative effects on its trading partners, but indirectly, they might enjoy positive effects of trade with China because those low-cost final goods could improve domestic consumption and raise production possibilities in partner countries," he said.
According to him, China's role in global trade is expected to remain significant in the years to come, given China's strong external competitiveness.
This year the consensus is for both export and import growth in China to continue to grow at a more sustainable level.
For example, he said, it is expected that that China's export growth will continue to outperform global trade, thus allowing Chinese exporters to gain more market shares in both developed and emerging markets. Import growth is also likely to grow further, perhaps outpacing exports, given the country's robust domestic demand.
"With the benefit of hindsight, I think the Chinese economy is committed to play an important leadership role in promoting the efficiency of the global trade and financial systems. China is ready to play an aggressive role in effecting a more profound global rebalancing, in my view, including the need to implement exchange rate adjustment as part of the solution in addressing global, including trade imbalances," said Surin.