(Yicai Global) March 20 -- China’s moderate inflation rate provides a golden window for policy makers to have room to maneuver in order to promote economic growth, a chief economist at US financial services giant Morgan Stanley’s China arm told Yicai Global in a recent interview.

China’s consumer price index, a gauge of consumer inflation, is likely to stay around 2 percent over the course of 2023 and might edge closer to 3 percent by year end, Xing Ziqiang said. But it will not exceed the 3 percent inflation cap set at the ‘Two Sessions,’ the annual meetings of the country’s top political and legislative bodies, earlier this month.

February’s 1 percent year-on-year gain in consumer prices will probably be the lowest this year, Xing said. Demand is expected to rebound as consumption recovers which will push up inflation, but the recovery will be moderate and healthy, he added.

While the rate of China‘s consumption increase is definitely on the rise, it is not likely to grow 5 percent or 6 percent per year, as had been expected before the pandemic, Xing said. However, since China is already the world’s second-largest consumer market, even if it expands by 4 percent to 5 percent, it will still be noticeable in the global market.

Stabilizing the real estate market is key to steadying the country’s economy, Xing said. As long as the property market is stable, then half of the economy’s stabilization problems have been solved.

Therefore, policymakers need to pay close attention to new realities in the property market and react quickly once there is a further downside risk by introducing more policies such as providing developers with more liquidity and lifting restrictions on multi-home purchases.

In the current environment of anti-globalization, China should respond by attracting more foreign investment, opening up further and strengthening reforms. For instance, the country should trim its negative list of foreign investment, which bans overseas capital from certain business sectors, and improve the protection of intellectual property to lure more foreign investment in advanced manufacturing.

China should also encourage companies to go global and to set up factories in other countries such as Mexico, India and Vietnam. It should create favorable conditions to turn ‘Made in China’ into ‘Made by China.’

Although on the surface, overseas investment and factory construction cannot directly change China’s gross domestic product growth data, it will certainly improve the country’s gross national product, Xing said.

The US capital market is not likely to perform well this year, Xing said, adding that he regards Asia and China as good destinations for asset allocation.

The entertainment and tourism sectors are benefiting the most from the post-pandemic rebound in consumption, and as the service industry returns to normal, broader consumption sectors will benefit too. But this will take time and things may not return to normal until the summer, Xing added.

Editors: Tang Shihua, Kim Taylor