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China has resumed growth and is leading the world economy out of recession, but the country must ensure that its government saving does not revert to its previous excessively high levels, the Organisation for Economic Co-operation and Development said Tuesday.
In its latest economic survey of China, the OECD said the country can afford the extra spending as its public finances remain strong. "Public spending should be stepped up to support much needed social reforms in areas such as education, welfare assistance, pensions and health," the Paris-based organisation said.
OECD pointed out that China's gross government debt amounted to only 21% of GDP in 2008. The stimulus measures are expected to increase this debt ratio by only 3% of GDP in 2010. By contrast, gross public debt in OECD countries is projected to almost reach their total GDP this year and even exceed it in 2011.
"The Chinese government's swift and vigorous action to support its economy has contained the impact of the global recession," OECD Chief Economist and Deputy Secretary General Pier Carlo Padoan said in Beijing at the launch of the survey.
The group identified that reforms are needed in a number of areas, especially in China's exchange rate flexibility.
"Allowing greater exchange rate flexibility and putting more weight on an inflation objective - while keeping a vigilant eye on asset prices - would offer the central bank more scope to tailor monetary policy to domestic macroeconomic conditions and reduce the costs and risks of sterilizing foreign reserve inflows," OECD said.
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