(Yicai Global) Nov. 28 -- Preventing financial risks is not in contradiction to accelerating economic growth and China now needs to adopt an expansionary policy, a member of the Chinese Academy of Social Sciences said at a recent forum.

China should not worry too much about its macro leverage ratio, Yu Yongding, who previously served as a member of the monetary policy committee at the People’s Bank of China, said at a forum on Nov. 26.

China’s deposits are greater than its investments, the country has for many years maintained a surplus in both its trade and current accounts and it is also a creditor boasting overseas net assets worth USD2 trillion, Yu said. China thus has the ability to defend itself against financial risks caused by a high leverage ratio, which most other countries do not have.

“Although, on the micro level, some companies do have problems, on the macro level, economic growth should not be sacrificed for the sake of lowering the leverage ratio, otherwise, this might increase China’s financial risks,” Yu said.

“To mitigate risks, China should strengthen financial supervision instead of tightening fiscal and monetary policies,” he added.

China must prioritize hiking economic growth rather than curbing inflation, he said. It should stick to expansionary fiscal and monetary policies, such as lowering interest rates and increasing monetary supplies. China will still mainly depend on its fiscal policy amid poor economic expectations and the existing ‘liquidity trap.’

Exports are unlikely to provide much impetus for growth due to the gloomy outlook for the world’s economy. As a result, China will rely on tried and tested means, such as facilitating economic growth by enhancing investment in infrastructure, Yu said.

The constant shrinking of economic growth will weaken long-term growth momentum and could make the rebuilding of the Chinese economy quite difficult, he added.

After the global financial crisis from 2008 to 2009, China withdrew too early from an expansionary macro-economic policy and this directly resulted in the slowdown of China’s economic growth rate over the past decade, Yu said. Although there were indeed also long-term structural factors behind the slowdown such as the ageing population, environmental restrictions and limited room for further growth.

Editors: Tang Shihua, Kim Taylor