The Asian Development Bank president said today he is optimistic China's economy will post healthy growth of 6.7% this year despite jitters over the yuan's depreciation and a plunge in Chinese stocks.
China's slowdown is due to policies to pay more attention to the environment, an ageing population, waning migration from rural areas to cities, higher wages and higher per capita income, currently $8,300, that make it more difficult to maintain the very rapid growth rates of the past, he said.
Trading in Chinese stocks was suspended yesterday after a key index plunged 7%. China's stock markets have little connection to the rest of its economy, but two sharp price declines this week have focused attention on the slowdown in Chinese growth. The latest plunge in Chinese stocks was set off by concern Beijing is allowing its yuan to weaken too fast against the dollar.
Nakao said he does not see a serious adjustment in the Chinese economy because there is much room to expand service industries, state owned enterprises are being reformed, social security is being boosted and efforts are underway to reduce the income disparity between cities and rural areas.
Fiscal reforms include measures for local authorities suffering from high debt to increase their revenue and a larger role for central government in providing social security.
"There is room for stimulus if growth is coming down because the fiscal position is strong and inflation is subdued," he said. "For these reasons, I don't have a very pessimistic view about China."
But he warned that unless China makes progress in reforms especially on local government finances, it would be difficult to continue relatively high growth.
Meanwhile, Nakao said the ADB is happy to cooperate with the new China-led Asian Infrastructure and Investment Bank, with the two banks to go into co-financing of projects when the AIIB starts operations mid-2016. Possible projects for co-financing would be in transportation, roads, renewable energy and water projects.
The Beijing-based bank, which will launch next week, has been viewed by some as a rival to the US-led World Bank and the Japan-led ADB, with suspicions China could use it as a tool to advance its influence and agenda in the region.
"To me there is no choice over not cooperating, we should cooperate," Nakao said, pointing to developing Asia's $8 trillion infrastructure financing need from 2010-2020 and huge infrastructure gaps in countries such as India, the Philippines and Indonesia.
He said ADB members, including Japan and the United States which have not joined AIIB, also want ADB to cooperate with the new lender.