Economy faces threat of double dip

Premier Wen Jiabao warns of dangers still lurking from global financial crisis

Beijing: Premier Wen Jiabao warned on Sunday that the Chinese economy could suffer from a "double dip" this year despite its apparent smooth recovery.

"The economy faces a complicated situation because of multiple uncertainties," he told reporters after the closing of the annual session of the National People's Congress, China's top legislature.

Despite the beginnings of a world economic recovery, he said the main problems have yet to be solved. Unemployment remains high, while some countries are facing debt crises. Meanwhile, commodity prices and the value of major currencies are unstable. Some countries are hesitating to continue their stimulus policies out of fears of inflation.

Domestically, Wen said, although the recovery has been impressive, it has been driven mainly by policy support and many enterprises have yet to rely on themselves for sustainable growth.

"The situation is potentially more dangerous than it looks," said Ma Ming, dean of the department of applied economics at the Beijing Institute of Technology.

The Chinese economy expanded by 8.7 percent last year, compared with 6.2 percent for the first quarter of 2009, when it hit a trough. The overall growth rate is fairly impressive compared with other crisis-hit countries, but it has been achieved mainly on the back of government stimulus measures, including the $586-billion stimulus plan and the 9.6 trillion yuan ($1.4 trillion) in new loans last year.

"A double dip is possible if the government exits from the stimulus package while enterprises have failed to adapt to the new situation," said Zhao Xijun, finance professor of the Renmin University of China. "The government must continue its proactive fiscal policy and moderately relaxed monetary policy," he said.

Wen reiterated the continuity of those two policy lines and promised to strike a balance between maintaining economic growth, adjusting its economic development model and managing inflation.

"Only in this way can we avoid the 'double dip'," the premier said.