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UPDATE 1-China should speed up structural reform -economist

Published 06/18/2009, 02:54 PM
Updated 06/18/2009, 02:56 PM

(Adds comments from forum)

LONDON, June 18 (Reuters) - China should quicken the pace of its structural reform or its economy may become lackluster, an influential Chinese economist said on Thursday.

Yu Yongding, a former central bank adviser, said in a speech published at a forum here that China would achieve a growth rate of 8 percent this year because of its strong fiscal position, huge domestic market and strong external position.

But Yu added: "The seriousness of the impact of the global crisis on the Chinese economy shows that China needs to speed up its structural reform ... otherwise the Chinese economy may lose its growth momentum in the near future."

Yu, who heads the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, a leading government think-tank, said he hoped for reform of the United Nations, a move which would increase the voice of emerging economies, and for an alternative to the U.S. dollar as a reserve currency.

"I wish Americans can respond positively to the proposal ... of reform of the international monetary and financial system and of the creation of a 'super-sovereign reserve currency'."

Russia, China and Brazil have said they are interested in buying International Monetary Fund bonds denominated in the IMF's SDR (Special Drawing Right) internal unit of account.

Yu also cautioned against rash government investment policy.

"Non-performing loan ratios definitely will be increasing in the future," he said. "The quality of the growth and sustainability of the growth can by compromised by an overzealous investment drive."

China announced a 4 trillion yuan ($585.3 billion) stimulus package late last year, which has boosted the economy.

However, Yu told the forum that monetary policy had become too expansionary.

"In China, money market liquidity is abundant. Since the last quarter of 2008, China's monetary policy has been too loose."

China cut interest rates five times in the latter part of 2008. Its one-year yuan lending rate is 5.31 percent and 1-year yuan deposit rate is 2.25 percent. ($1=6.834 Yuan) (Reporting by Carolyn Cohn; Editing by Padraic Cassidy)

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