American economist Edmond Phelps won the Nobel Prize in 2006 in economics for his contribution in understanding the relationship between inflation and unemployment. At a recent forum attended by Nobel Prize laureates in Beijing, a People's Daily reporter had an exclusive interview with Mr. Phelps.
Q: In your opinion, what impact will Chinese economic development have on the world?
A: Some of China's economic policies and their results have made a positive impact on the world – for example, lower interest rates and a balance in imports and exports.
Q: What kind of problems do you think the Chinese economy is facing?
A: In economic development there are always problems. It is necessary for China to solve these problems by establishing new institutions; making new laws; revising old laws; and renewing some policies. In order to catch up with the West in innovation, China must speed up its pace in realizing a market economy. I think the most important issue now is to reform the financial sector. China's financial sector is still in its early stages – there is great potential for further development.
Q: Currently China's CPI has seen a higher increase, especially in food prices. Some people think a new round of inflation is coming to China. What's your take on this?
A: I don't think there is a direct relationship between the two. But, on the other hand, maybe some farmers hold on to their supply and wait for a higher price in the future. Now food prices, on the whole, are increasing. I have a relative who has planted a lot of corn in the US. Due to the price hike in corn, he is anticipating further increase; and so he doesn't want to sell the corn now.
In the US, those who buy houses in installments have great expectations for the future. They expect that interest rates will be as low as they were in 2002 and 2004; but the fact is, they are not. So, sometimes people are mistaken in their expectations. In any healthy economic situation, the future is decided by current decisions in investment and assessment.
Q: What kind of measures should the government take to reduce inflation?
A: The government's economic policies should follow the expectations of economic operation. When the government doesn't make any progress in reducing inflation, even if it has taken appropriate measures, then it is best to discuss the method of lowering the price with the public; and to inform people why that method is chosen to decrease the price.
Q: What's your opinion on the Chinese stock market?
A: No one knows exactly when the stock will go up or when it will go down. No one can accurately judge whether the index is too high or too low. It is also meaningless to talk about it because its operation is unpredictable. However, in economic society, everyone can have their own understanding about their own experience; then predict; and then decide whether they should buy or sell. The stock market is a complicated place, and stock prices are impossible to fully control.
Q: How is the Chinese stock market related to the world market?
A: Currently, funds do not naturally float between China and other parts of the world. For example, if Americans want to buy Chinese stock, it is not very easy. However, there are some foreign investment funds in the Chinese stock market, as well as some western financial institutions that have entered China, so foreign investors can buy Chinese stocks through them. But it doesn't mean the contact is very close. The Chinese stock market is not closely connected with the Asian or the American and European markets. This is quite normal – even the European and American stock markets are on different levels.
Q: How many times have you visited China, and what are your impressions of China?
A: I have been here four times. I have been to Xi'an, Kunming, Nanjing and other cities. China has very good development environment. I like the Chinese people's spirit: they are adventurous; they are optimistic; and are willing to grasp opportunities. I hope China's efforts in development will achieve good results; I have confidence in it.
By People's Daily Online
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