CHINA should abandon its tight policy stance at once because the risk of an economic slowdown is growing, according to a prominent government economist.

The country adopted a tight monetary policy in December to prevent economic overheating and fight inflation, which has since surged to a 12-year high of 8.7 percent in February. It has complemented higher interest rates and credit quotas by imposing price curbs.

But Wang Jian, secretary-general of the China Society of Macroeconomics, said these policies would not only fail to bring down inflation but would also hurt growth, jobs and consumption.

“China should not try to contain inflation at the cost of growth. Economic growth should always come first before prices,” Wang told a forum in Beijing last week.

Wang’s think-tank comes under the National Development and Reform Commission, the powerful economic planner. His views do not reflect the consensus in government policy circles, but they show that debate is swirling over whether China needs to take its foot off the brake as the global credit crunch worsens.

“If we had reasons last year to argue whether the economy was overheating or cooling down, we should stop arguing right away and immediately loosen macro policies,” Wang said.

Recent Chinese investment and trade data pointed to further damage to come from the U.S. subprime mortgage crisis, he said.

Newly started investment projects contracted by 2.6 percent in the first two months from a year earlier. This contrasts with 28 percent annual growth in the first 11 months of last year.

“This is foreshadowing a continuous fall in the investment growth rate. The drop could be even larger next year,” he said.

China’s total exports grew by only 6.5 percent last month over February 2007, the smallest rise in five years, he noted.

HSBC on Thursday also sounded a cautious note. The bank cut its projection of Chinese export growth this year to below 13 percent from 20 percent. It now expects gross domestic product to expand 9.7 percent, down from 11.4 percent in 2007.

“Many people think that Western governments’ rescue measures will stop the subprime crisis from worsening. But I doubt it will be that easy,” Wang said.

Wang is advocating easier policies even though he expects inflation to average eight to 10 percent over the next 20 years.

The limited availability of land and resources, a growing population, the difficulty of sustaining productivity gains and soaring global commodities would all push up prices, he said.

In the next three to five years, it would be almost impossible for China to hold inflation below 5 percent, he said.

“China should not expect to enjoy both the benefits of globalization and mild inflation below 3 percent a year. It must make a choice,” he said.

Wang’s choice is fairly high inflation, which he sees as a global phenomenon in any case. Accordingly, he said the government should scrap price controls it introduced in January.

Higher interest rates served no purpose in curbing prices, Wang added, because they cannot increase the supply of products and resources. They also dampened domestic consumption, he said.

Moreover, higher rates, plus the yuan’s ever-rising exchange rate, could spark more unwanted inflows of speculative hot money.

Wang said the trade surplus and foreign direct investment could explain less than one-third of the US$120 billion increase in China’s foreign exchange reserves in the first two months.

Wang said rapid yuan appreciation was not sustainable and urged the government to pause now that the dollar was falling. Industries such as textiles were faced with the threat of extinction, he warned.(SD-Agencies)