Cheng Siwei held the powerful position of Vice Chairman of the Standing Committee of the National People's Congress for five years until 2003. Mr Cheng was speaking at a business conference in Sydney along with Australia's Assistant Treasurer Bill Shorten.
Presenter: Karon Snowdon
Speakers: Australia's Assistant Treasurer Bill Shorten; Cheng Siwei, former Vice Chairman of Standing Committee of the National People's Congress
SNOWDON: 2009 was a difficult year, inluding for China.
Distinguished economist Cheng Siwei says without the government's stimulous package China's growth rate would have been 2.4% instead of 9%, and 8 million jobs would have been lost.
A disaster of that size was avoided but another is looming.
CHENG:This stimulous package is also a double bladed sword. So its negative effects are emerging this year.
SNOWDON: One of the negative effects is China's own style of sub prime crisis stemming- like in the US case from the over supply of easy money.
Local government debt is enormous.
CHENG: So the total debt is around 7.66 trillion RMB. So the sub prime in the United States is the banks give the loan to the people who don't have the capacity to pay back. And the sub prime in China is the banks give the loans to the local government which don't have the capacity to pay back. So this is a very serious problem.
SNOWDON: A very serious problem totalling a bit more than one trillion US dollars.
One third of the local governments have a debt larger than their annual revenue.
Speaking at the same conference Australia's Assistant Treasurer Bill Shorten pointed to the same problem.
SHORTEN: We see the one risk in the outlook in China is the rapid growth in loans which could generate inflationary pressures.
SNOWDON: Other problems arising from the massive stimulous include over investment and over capacity -- in steel its 200 million tons, with attendent environmental problems.
Plus the asset bubble, especially in the housing market in the major cities. Rising inflation has meant 120 billion dollars has departed from low return bank deposits.
CHENG: They use the money to buy the house, to buy gold, to buy garlic, to buy cotton, even to buy vegetable oils. So it makes a fictitious demand. So now ourt government try our best to hedge the asset bubble, the debt of local government and also to fight this inflation.
SNOWDON: The next five year plan to be released in March will have at its core a change to China's development pattern.
With the emphasis on higher domestic consumption, CPI linked salaries, better social security and a rebalancing of trade to bring down the large surplus Cheng Siwei believes Beijing will avoid disaster. But it wont be easy.
And on the economic relationship with Australia he says it could be more stable and long term if a free trade agreement -- still struggling after 15 rounds, could be negotiated.
CHENG: I wuld like to ask my Chinese colleagues and my Australian friends to do a very important job, to develop a mutual undertsanding.
SNOWDON: In his speech Bill Shorten pursued a similar theme and spoke a lot about respect.
He was standing in for an absent Treasurer Wayne Swan, while China's Consul General was also unable to attend to give a key note speech.
When asked later Bill Shorten dismissed the revelations from the Wikileaks website had any consequence to the bi lateral relationship.
In one of the reports Australia's Former Prime Minister Kevin Rudd allegedly told the US force might be necessary against China if it can't be intergrated into the international community.
SHORTEN: I just don't believe that world governments are getting too obsessed about leaked documents alleging private conversations. What you do in life is you focus on what's real and tangible.
Connect Asia brings you an hour of news, business reports and analysis from commentators and correspondents.
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