China central bank adviser warns about 'quasi-stagflation' risk

BEIJING (BLOOMBERG) – China’s economy could enter a period of “quasi-stagflation” with relatively slow growth and excessively high producer-price inflation, said Liu Shijin, an adviser to the nation’s central bank.

Such a scenario is “very likely” if demand remains weak, producer prices stay high, corporate profits are squeezed, and existing risks in the economy are “released too quickly,” he told an online forum, the China Macroeconomy Forum, on Sunday (Nov 21). Such a possibility needs close attention as once it happens, it will last into next year, he said.

China’s economic growth has slowed noticeably after September, and judging from the current situation, especially the two-year average growth rate, economic growth “is very likely to come in below 4 per cent in the fourth quarter,” he said.

Mr Liu, a member of the monetary policy committee at the People’s Bank of China, proposed an “appropriately long” timeframe to address structural problems such as local government debt and the rapid expansion of certain property developers, and recommended targeting a “soft-landing” to minimise negative consequences.

While the busting of “some bubbles” appears to be “hard to avoid,” it won’t change the whole situation, he said without being specific.

He also called for more attention to the economy’s “structural potential,” such as city clusters, the digital economy and green development, which he said can be more important than macroeconomic policy in driving growth.

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