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High chance of China hard landing, says adviser to Japan's Abe

[TOKYO] The chances are high China will have a hard landing, and it must undergo a severe adjustment period, an economic adviser to Japanese Prime Minister Shinzo Abe said.

"There's a high possibility of a hard landing in China" as its economy is oversupplied and adjusting demand and supply will cause a shock, Etsuro Honda said in an interview late Tuesday in Tokyo. The problem is more acute as "China can't use monetary policy for quantitative easing as it has been used to stabilize its currency."

While officials from the International Monetary Fund to the Bank of Japan have said China will avoid an economic crash, Honda's comments echo concerns among investors about the direction of China's economy. A surprise currency devaluation, the slowest growth in a quarter century and perceived policy missteps are raising anxiety about the world's second-largest economy.

Unlike the idea of capital controls suggested by BOJ Governor Haruhiko Kuroda, Honda recommended China adopt a floating exchange rate system. Otherwise, China's economy will suffer from a problem of oversupply for quite a while, he said.

Honda, 61, is an academic and has been an adviser to Abe for the past three years.

"I really don't think that China's economic fundamentals are good and it's just real estate markets and stock markets that are panicking," Honda said. "China has to go through massive structural reforms and its impact on other economies is quite large. That's different from other nations."

BLOOMBERG