x Abu Dhabi, UAEFriday 21 July 2017

China's 'economy is sound'

China's annual GDP in Q3 falls to 9% from 10.1% in previous quarter, and it must prepare for challenges.

China last week announced a series of policy changes to help people to buy their houses as it relies on consumer spending to counter the slowdown.
China last week announced a series of policy changes to help people to buy their houses as it relies on consumer spending to counter the slowdown.

BEIJING // China must prepare for the challenges sure to be brought about by the global financial crisis, though the economy is generally in good shape, the central bank governor, Zhou Xiaochuan, said today. Reporting to parliament on China's prospects in the face of the worst financial crisis in 80 years, he struck a balance between confidence and caution. "We must not underestimate the impact on our economy," he said on state television.

"The economy's basic momentum has not changed. But in order to confront the many destabilising and uncertain factors that exist, it is necessary to strengthen our awareness of the dangers, proactively cope with the challenges and do a solid job of preparing to face potential difficulties." China's capital controls and the relative conservatism of its banks have limited its direct exposure to the financial crisis.

Mr Zhou noted that the country's financial institutions had grown stronger and that there was still ample cash available, promising signs even in the face of external risks. The continuing need for investment in infrastructure and the potential for expanding Chinese consumer demand could help cushion the impact of weakening exports, he said. Annual gross domestic product growth slowed to nine per cent in the third quarter from 10.1 per cent in the second, and the government has come out with a raft of monetary and fiscal measures in recent weeks to stimulate growth, including two cuts in interest rates and the required reserves for banks.

Mr Zhou said the central bank would work out a plan to provide emergency help to banks should it need to do so and would use normal monetary policy tools to ensure there was ample liquidity in the system. The People's Bank of China (PBOC) will step up communication with other key central banks and improve its own supervision and management over speculative capital flows to ensure that no potentially damaging outflows will occur.

Mr Zhou also said the PBOC would continue to reform interest rates to make them more market-orientated and reiterated a long-standing pledge to improve exchange rate flexibility while keeping the Chinese yuan basically stable. Premier Wen Jiabao said on Saturday that, while weakening external demand was hurting the economy, his government was confident it could keep growth steady through appropriate policies such as developing the countryside.

In the latest sign of weakening demand for Chinese products overseas, export deals struck at a recent trade fair in the market hub of Yiwu in Zhejiang province fell by more than three per cent from a year earlier, the official Xinhua news agency said. In addition to increasing export tax rebates for many products and making it easier for people to get mortgages, the government has announced that it will spend two trillion yuan (Dh1.07 trillion) on expanding its railways - more than it had previously committed.

Mr Zhou said the central bank would keep a close eye on consumer prices, even though inflation had eased in recent months, slowing to an annual 4.6 per cent last month from a peak of 8.7 per cent in February. He cautioned that inflation may rebound, but did not specify how that would affect monetary policy, which has recently shifted focus to supporting growth. * Reuters