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Agenda: Glasgow welcomes the opportunity to study China's economic issues

Today we welcome a major delegation from Nankai University, Tianjin, China, to launch a collaborative Innovation Institute for the study of China's economy at Glasgow University.

This collaboration will focus on the study of some of the major economic issues China will address in the next phase of its remarkable economic development.

This comes just days after my own visit to Tianjin, where I gave a public lecture on the need for greater co-operation among the G20. This, I believe, is critical as the international financial system adjusts to the recent trends in many of the emerging economies - like China - which in part have been triggered by the monetary and fiscal policy stance of the US and other Western economies in the wake of the financial crisis.

A number of commentators have expressed concerns about the debt issues China faces. Global real estate capital deals continued to rise in 2014, to $20.6 billion (around £12.4bn) in the year so far, compared to $18.6bn in the same period in 2013. Just a week ago, Zhaijiang Xinrun, a property developer collapsed with $569m of debt. Less than two weeks previously, there was the first bond default by a Chinese company, the Shanghai Chaori Solar Energy Co.

There are those who take a pessimistic view of these developments, suggesting China is experiencing a credit and debt bubble which may risk a financial crisis. From 2008 to 2014 total non-financial credit increased from 138% to 205% of GDP. A tightening of credit, it is argued, is bound to have difficult consequences for the real economy, much as has happened in the OECD countries.

An alternative perspective is that structural economic reform as announced at the recent National People's Congress by President Xi Jinping can produce something more akin to a soft landing. One interesting part of President Xi's agenda is the prospective reform of the fiscal system by dealing with the unfunded nature of local government spending.

Recalibrating the spending and revenue-raising responsibilities of local government and introducing greater transparency should help to deal with the problem of debt expansion at local government level. A second important element is the reform of state-owned enterprises, which will need to focus on increasing their return on capital, also with an injection of private capital, which should reduce the expansion of borrowing in this sector. If these reforms are conducted in a timely way, it is entirely possible that a soft landing can be achieved.

It is certainly hugely important that growth can be kept at around China's target level of about 7.5%, and within this, that employment levels can be maintained.

Given the role of state sector and the existence of a non-convertible currency regime with capital controls it is clear that if China is to rebalance its economy, it will be a very different rebalancing act from the Western economies before the crisis. The main issue is over-investment rather than over-consumption, and as an economy China's savings rate is very high, with vast foreign exchange reserves. The main risk to avoid is a path of sluggish growth as the economic reforms take hold.

This is a fascinating time to study China as an economy. It matters critically not only for China and Asia of course, but for the rest of the world. Emerging economies account for a bigger proportion of world GDP and trade than even 10 years ago.

The lecture I delivered in China recently focused on the need for the international community to recognise this growing interdependence, and to consider ways in which macro-economic policy co-ordination at global level might be improved to avoid a repeat of the lack of co-operation on global imbalances which was a contributory element - though not the main, or only cause - of the 2007-08 financial crisis.

The launch of a collaborative institute between the University of Glasgow and China is an important platform on which to debate these vital issues in years to come.

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