Is there really a real-estate bubble in the Asian country?

Is China a capitalist or socialist country?

To answer these questions, VJM talked with Andy Xie, one of the brightest economists in Asia.

Labeled as "politically incorrect," he predicted the U.S. subprime crisis.

VJM has been able to contact him to have a conversation about truths and myths regarding China.

Hello Mr. Xie, thank you for giving us this interview. We know you are a really busy man.

Actually, you have to run to the airport after the interview. So, to start with ...

You forecast the crisis in China. Is the world now on the road to [economic] recovery?

Well, I think that the world is still in a transition.

The way out is that developed countries like the United States need to save more,

so they will not be able to spend more,

while emerging economies like China need to spend more to have a more balanced global economy.

Many analysts say that China is suffering less than the rest of the countries.

Is China leading the global recovery from this crisis?

Leading the growth in a way is correct. The government has spent a lot of money.

The government introduced RMB4 trillion, equivalent to U.S.$600 billion, as a stimulus package.

That is over 13 percent of Chinese GDP. But the export sector still suffers a lot.

Forty million people lost their jobs during this crisis.

For many years, Chinese growth was based on exports. After the crisis outburst,

many analysts say that China should export less and consume more. Is this possible?

This struggle is about how much the Chinese government wants to control the economy.

If they wan to control the economy 100 percent, consumption is not going to be strong.

Actually, there is a huge gap in income between cities and villages.

How could the government correct such imbalance?

We know that the welfare system is going to take longer than expected, but

are there other ways to correct these imbalances?

I think that the key is a good labor market.

The solution for rural income problems or living standards problem is not in the villages.

It has to be in the cities. That is another big issue China needs to solve.

The property price is too high. In many cities, the property value is equal to 20 years of a family income.

It is just not affordable. You need to bring it down to like possibly seven or eight years of a family income.

Then, urbanization can come much quicker and more people moving from villages into cities.

So that is something that the Chinese government must come around to make a decision.

High property price is not good for economic development.

The bubble can be a danger. Corruption may be another danger. You have been very critical about it.

So we would like to know how this can affect the Chinese economy.

I think that corruption has come along with this [Chinese] property market.

And because it is all based on government-owned land, the loom for corruption is very large.

Mr. Xie, why does China have the biggest savings rate in the world?

Chinese people are making money for the first time. The wealth level is very low.

Most of the wealth is owned by the government. So they are insecure and also want to save.

So that is why the Chinese household saving rate is so high.

And that's why it requires the Chinese government to transfer its own wealth to the household sector.

Can the Chinese RMB replace the dollar as the international currency reserve?

In the very long term is possible, but in the short term we have many hurdles.

But in the very long run it is possible. It will become bigger than the U.S. economy, possibly in 15 years.

Some economists believe that China's statistical figures are not completely trustworthy.

Are they reliable in your opinion?

The data, in that regard, are not accurate, because the data are not collected through an independent channel.

It is collected through local governments with the best interests on what kind of data they report.

That is a big problem. But even though, China's economic accomplishment is real.

Are Chinese politicians doing their best to improve life conditions or do they have other priorities?

The Chinese government puts stability above everything else.

There is another angle to understand Chinese politics. Chinese senior government officials have five-year terms.

So in three years' time, there will be a new government.

For the people running the country today, there are not powerful incentives to matter through.

Leave the problem to the next government.

I know this question is difficult but, is China a state-oriented economy or a market one?

China is half-government and half-private. When you live in China, you sometimes cannot feel the government.

Supermarkets or the company that manage your flat are private-owned companies.

But public transport, airlines, banks or phone companies are government-owned.

All the large-scale industries with monopoly power or strategic significance are government-owned.

Mr. Xie, thank you very much for your time. It has been a very interesting interview,

and we hope you take your plane on time. Thanks.

Sure. Thank you.