China 'needs very certain' recovery to end stimulus

Beijing: China's government needs evidence of a "very certain" recovery before it can roll back stimulus measures adopted during the crisis, central bank Governor Zhou Xiaochuan said.

"If you can be sure about the recovery, and then some of the extraordinary stimulus policies can gradually fade out," Zhou said in an interview in San Jose, Costa Rica. "On the other hand, you should know that it's not a W-shaped recovery," with a renewed slowdown following the current rebound, he said.

China has yet to raise interest rates or allow its exchange rate to appreciate, keeping in place some of the extraordinary measures even as inflation and asset prices accelerate.

Zhou's concern about risks of a W-shaped recovery echoed a warning on Tuesday by Harvard University Professor Martin Feldstein that there is a "significant risk" of a US return to recession.

Policymakers need to see "quite definite evidence or statistical data to show it's a good recovery," said Zhou, who spoke late on Tuesday after arriving in Costa Rica from Cancun, Mexico, where he attended an annual meeting of the Inter- American Development Bank.

"Under normal circumstances, China's current growth and strong economic indicators may have triggered more aggressive tightening, but the special circumstance means the tightening may not come as fast," said Peng Wensheng, head of China research with Barclays Capital in Hong Kong. "In general Chinese officials will be very cautious and they'd rather withdraw stimulus slower rather than quicker."

The country is at risk of a crash because of a credit boom that caused a build-up of bad assets, according to some observers. China is "the greatest bubble in history," James Rickards, former general counsel of hedge fund Long-Term Capital Management LP, said this month. Harvard's Kenneth Rogoff, hedge fund manager Jim Chanos and Gloom, Boom & Doom publisher Marc Faber have also warned of a crisis.

Withdrawal of fiscal and monetary stimulus needs "sequencing," the People's Bank of China governor also said. "For many nations, the consensus is fiscal policies should be phased out lastly."

Premier Wen Jiabao's government implemented a 4 trillion yuan ($586 billion) two-year fiscal stimulus and unleashed a record 9.59 trillion yuan credit boom last year to help shield the economy from the impact of the world's worst postwar recession. Officials also stopped allowing the yuan to appreciate starting in July 2008, keeping it pegged around 6.83 per dollar.