China should aim for annual economic growth of about 5 percent, rather than its expected target of 7 percent for next year, says Peter Warburton, director of U.K.-based Economic Perspectives, an economic consulting firm.

China's economy grew 7.8 percent in the third quarter from a year earlier, and the target has been 7.5 percent for several years.

"Almost everyone agrees that the sustainable pace of growth is slowing and may be around 5 percent," Warburton told Newsmax TV in an exclusive interview.

Watch our exclusive video. Story continues below.



"If you try and charge ahead too fast, the danger is not only that China will slip into really having slack policies again, but it does mean that there's likely to be upward pressure on inflation."

Editor’s Note: Obama Donor Banned This Message (Shocking)

China's annual inflation hit an eight month high of 3.2 percent in October. "If we saw inflation through 4 percent, it would need to provoke some kind of reaction," said Warburton, author of "Debt And Delusion: Central Bank Follies That Threaten Economic Disaster."

Warburton is impressed with the economic reforms China announced last week. "The key is that they're going to allow private enterprise to play a bigger role, and that's immensely positive," he said.

"The last five years we've seen private enterprise forced onto the back [burner]. In the wake of the [financial] crisis, China closed up. This sounds like the end of that phase."

Financial liberalization may lead the change, Warburton says. "Other reforms are going to take a lot more time."

So why is China opening up now?

"It's a recognition that when you have a managed or directive economic system, that it makes lots of bad decisions," Warburton said.

"It destroys value. You can be a very wealthy and huge economy like China, but in time, if you keep on misallocating resources, everybody will lose out."

China doesn't face a crisis yet, Warburton says. "But if you run on this track another couple of years and you allow crazy projects to run wild, . . . you end up with some very poor decision-making. This is about trying to discipline the use of resources in the economy."

As for currency issues, the yuan has been strengthening against the dollar over the past two years. "China doesn't, at the moment, seem ready to take any action to prevent its currency from appreciating," Warburton said.

Uncertainty about Janet Yellen's handling of Federal Reserve policy could push the dollar down further, sparking import price inflation in the United States, Warburton says.

But that could help U.S. exports to China. "I don't think China has really put up any great barriers," Warburton said. "Every now and again, China figures out how to do something that it was importing before and replaces an external source of supply with a domestic one."

But that's more of a threat to Japan and Germany, which are highly dependent on exports, than the United States, Warburton says.

In any case, "the diversity of tastes of Chinese consumers plays well into the Western offering," he said.

Editor’s Note: Obama Donor Banned This Message (Shocking)