Renowned economic theorist Michael Pettis has once again warned that China may face a tough landing if it seeks to keep its growth at the current relatively high level, rather than engineer a timely and orderly slowdown, the Hong Kong Economic Journal reported Monday.
The world’s second largest economy should cut its growth by half a percentage point each year and bring it to a more sustainable level of about 3 to 4 percent in the coming years from the 2013 pace of 7.7 percent, Pettis was quoted as saying in an interview.
If the country fails to take appropriate steps, it could see misfortune like Brazil in the 1980s and Japan in the 1990s, moving towards continuous stagnation in the economy, he said.
The comments came a few weeks before China releases its economic data for the second quarter.
Pettis, a professor at the Guanghua School of Management at Peking University, called on the Chinese government to cut loan growth and stop credit expansion.
The country’s property bubble has grown to a very serious proportion if we compare the prices to household income levels, Pettis said, noting that property prices in Beijing have surpassed those in New York, where has much higher household income levels.
The government should redistribute wealth through privatization, as well as undertake reforms on land ownership and interest rates, Pettis said. If proper measures are taken, domestic consumption will rise, creating new jobs that could offset potential losses stemming from a property market bust, Pettis added.
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