Economists meet in Swiss resort town for the annual World Economic Forum. For the head of China's National Economic Research Institute, prospects this year are better than last year, but added that government spending should not overheat the economy. Domestic consumption holds the greatest potential, if the government addresses social security issues and income disparities, Merchants Bank chief says.

Davos (AsiaNews/Agencies) - As China's economy recovers from a "soft landing", its big challenge this year will be to prevent overheating whilst still promoting growth, said Fan Gang, head of China's National Economic Research Institute, in his address to the World Economic Forum in Davos, Switzerland, an organisation that focuses on world economic issues.

For at least a decade, China has been a major focus at the forum. With a growing economy and expanding industry, it has been an engine of economic growth for other economies that depend on it for their own growth and import-export.

However, results for the world's second largest economy are lower than in previous years, posting growth of 7.8 per cent last year, its weakest performance since the 1990s. In fact, manufacturing is down, whilst a real estate bubble fuelled by government investments is creating jitters.

Still, things started to look up at the end of 2012 when fourth quarters figures showed faster growth than even Chinese leaders expected.

"Now I can say the 'soft landing' has landed last year, and now it's under way to recovery," Fan said. "This year China can grow around 8 to 8.5 per cent, and that will lay down a good foundation for the next couple of years". The challenge will be, he explained, to see how the central government and the banking system can work together to maintain growth.

For him, 2013 could also be the year to start the new round of financial, economic, regulatory and social reforms. The goal however must not to allow added government spending to promote further heavy borrowing and overheating of investments.

"The new leadership is now talking about reform and reform and reform, and restructuring, restructuring and restructuring," he noted.

Ma Weihua, president and chief executive of China Merchants Bank, was also at the forum.

In his view, domestic consumption holds the greatest potential because it is still low in China-35 per cent compared with 70 per cent in the United States. But, in his view, if the government wants to increase spending it needs to address social security issues and income disparities.

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