While noting the path to a service-oriented economy took decades for the West, which included periods of recession, Larry Fink, said China needs to bring about a solid fiscal policy. Introducing excess credit into the system is not the way to go.
The head of the world’s largest asset manager, BlackRock Inc. has stated that China would have to pursue significantly more aggressive reforms if it wants to transform itself from an export-oriented economy to a service-driven one.
“China is struggling with excessive leverage within a lot of financial institutions,” said Larry Fink, BlackRock’s Chairman and CEO at a BlackRock forum in Hong Kong. “They need to be more aggressive in their reforms. Reforms are slower than what I would have preferred.”
While praising China for identifying the need to transform its economy and be less dependent on manufacturing, Fink noted that such reforms in the West, took decades and were marked by periods of economic recession.
Fink felt China had still too many state-owned enterprises and that the recent explosion in credit was certainly “the wrong way to reorient the economy”.
He noted that the environment of ultra-low interest rates globally, exacerbated by Tokyo’s decision to introduce negative interest rates this year, have harmed China’s move to swiftly change over to a service-based economy. He called on the Chinese government to implement a fiscal stimulus program, especially in infrastructure projects.
Japan also came under fire for not fully delivering on the promised economic reforms under “Abenomics”. Incidentally, Japan will be hosting the upcoming meeting of the G7, later this month.
Fink hoped the G7 leaders would have fiscal stimulus in their agenda in their upcoming meeting.
“We have not seen any true fiscal policy. It is going to require a heavy dose of infrastructure investments. You cannot have central banks stopping this low rate environment unless we have government action,” said Fink.
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