Chinese President Xi Jinping said the nation needs to adapt to a ``new normal'' in the pace of economic growth and remain “cool-minded” amid a slowdown in expansion.
China’s growth fundamentals haven’t changed and the country is still in a “significant period of strategic opportunity,” Xi said, according to a Xinhua News Agency report on the central government website late yesterday.
At the same time, the government must prevent risks and take “timely countermeasures to reduce potential negative effects,” he said.
China’s policy makers are trying to keep economic expansion from slipping below Premier Li Keqiang’s 2014 target of about 7.5 percent while reining in a credit boom that a central bank official said threatens to undermine the financial system.
The government has so far limited its support to tax breaks, and speeding up infrastructure and social housing investment, with Li saying last week the focus remains on the quality of growth and on changing the structure of the economy.
“Authorities have increased their tolerance to somewhat lower growth as a necessary condition to push for structural reforms and contain financial risks,” Banco Bilbao Vizcaya Argentaria SA economists, led by Hong Kong-based Alicia Garcia-Herrero, wrote in a May 9 report.
“Risks are still tilted to the downside, concentrating on elevated financial fragilities and uncertainties about the implementation of their reform agenda.”
Preventing Risks
The government will continue to balance the relationship between economic expansion, reform, restructuring, improving people’s well-being and preventing risks to ensure sound economic growth and social stability, Xi said during an inspection tour to the central province of Henan from May 9-10, according to Xinhua.
“We must boost our confidence, adapt to the new normal condition based on the characteristics of China’s economic growth in the current phase and stay cool-minded,” he said.
China’s benchmark Shanghai Composite Index (SHCOMP) of stocks has dropped 5 percent this year on concern growth is slowing. A measure of industrial companies in the CSI 300 gauge has slumped 12 percent, and fell as much as 1 percent on May 9 to the lowest level since November 2008.
Gross domestic product increased 7.4 percent in the first quarter, the least since 2012, and is forecast to expand 7.3 percent this year, the weakest pace since 1990, based on the median estimate in a Bloomberg News survey last month.
Temporary Fluctuations
Premier Li said in April the government won’t adopt “short-term and strong stimulus policies in response to temporary fluctuations in the economy.”
People’s Bank of China Governor Zhou Xiaochuan reiterated that stance yesterday at a conference in Beijing, according to a report of his comments posted on the sina.com website.
Zhou told a closed-door session of the forum that the PBOC is always fine-tuning its policies and some of that is invisible to the market, the newspaper said. Zhou was responding to a question about whether a cut in banks’ reserve requirement ratio is imminent, it said.
Almost half of the economists surveyed by Bloomberg News last month predicted a cut in the reserve requirement ratio this year as part of an easing of monetary policy to support the economy.
Expectations for a reduction have increased after a government report last week showed consumer inflation moderated to an 18-month low in April and factory-gate prices fell for a 26th month.
Stimulate Growth
“Lower inflation readings are opening up room for monetary easing,” Kevin Lai and Tang Junjie, economists at Daiwa Capital Markets in Hong Kong, wrote after the inflation data.
They forecast two cuts of 50 basis points each in reserve requirements in second half of the year, with the first taking place in July. The ratio, which was last lowered in May 2012, is currently 20 percent for the nation’s biggest banks.
China’s potential growth rate may slow as a result of demographic changes and economic restructuring, the PBOC said in its first-quarter monetary policy report last week.
At the same time, “reforms will help to stimulate growth in productivity,” it said. Government efforts to curb dangers posed by a surge in shadow banking risk exacerbating the economic slowdown.
Any crackdown on interbank borrowing and wealth management products would withdraw liquidity that’s funded speculative investment, leading to bankruptcies and defaults.
Deputy central bank governor Liu Shiyu warned yesterday that shadow banking threatens to undermine the financial system and called for tougher rules to control an industry that’s driven up borrowing costs and done little to support the economy and productivity.
‘Gambling’Mindset
Shadow finance has created a “gambling” mindset, as money lured by higher returns is channeled into short-term investments, Liu said at a conference in Beijing.
Li Daokui, a former academic adviser to the PBOC, said at the same conference today that the commercial banking sector is the greatest danger to the economy and that credit risks are accumulating as growth slows. Shadow banking needs to be more transparent and brought under tight control, he said.
bloomberg.com
China’s growth fundamentals haven’t changed and the country is still in a “significant period of strategic opportunity,” Xi said, according to a Xinhua News Agency report on the central government website late yesterday.
At the same time, the government must prevent risks and take “timely countermeasures to reduce potential negative effects,” he said.
China’s policy makers are trying to keep economic expansion from slipping below Premier Li Keqiang’s 2014 target of about 7.5 percent while reining in a credit boom that a central bank official said threatens to undermine the financial system.
The government has so far limited its support to tax breaks, and speeding up infrastructure and social housing investment, with Li saying last week the focus remains on the quality of growth and on changing the structure of the economy.
“Authorities have increased their tolerance to somewhat lower growth as a necessary condition to push for structural reforms and contain financial risks,” Banco Bilbao Vizcaya Argentaria SA economists, led by Hong Kong-based Alicia Garcia-Herrero, wrote in a May 9 report.
“Risks are still tilted to the downside, concentrating on elevated financial fragilities and uncertainties about the implementation of their reform agenda.”
Preventing Risks
The government will continue to balance the relationship between economic expansion, reform, restructuring, improving people’s well-being and preventing risks to ensure sound economic growth and social stability, Xi said during an inspection tour to the central province of Henan from May 9-10, according to Xinhua.
“We must boost our confidence, adapt to the new normal condition based on the characteristics of China’s economic growth in the current phase and stay cool-minded,” he said.
China’s benchmark Shanghai Composite Index (SHCOMP) of stocks has dropped 5 percent this year on concern growth is slowing. A measure of industrial companies in the CSI 300 gauge has slumped 12 percent, and fell as much as 1 percent on May 9 to the lowest level since November 2008.
Gross domestic product increased 7.4 percent in the first quarter, the least since 2012, and is forecast to expand 7.3 percent this year, the weakest pace since 1990, based on the median estimate in a Bloomberg News survey last month.
Temporary Fluctuations
Premier Li said in April the government won’t adopt “short-term and strong stimulus policies in response to temporary fluctuations in the economy.”
People’s Bank of China Governor Zhou Xiaochuan reiterated that stance yesterday at a conference in Beijing, according to a report of his comments posted on the sina.com website.
Zhou told a closed-door session of the forum that the PBOC is always fine-tuning its policies and some of that is invisible to the market, the newspaper said. Zhou was responding to a question about whether a cut in banks’ reserve requirement ratio is imminent, it said.
Almost half of the economists surveyed by Bloomberg News last month predicted a cut in the reserve requirement ratio this year as part of an easing of monetary policy to support the economy.
Expectations for a reduction have increased after a government report last week showed consumer inflation moderated to an 18-month low in April and factory-gate prices fell for a 26th month.
Stimulate Growth
“Lower inflation readings are opening up room for monetary easing,” Kevin Lai and Tang Junjie, economists at Daiwa Capital Markets in Hong Kong, wrote after the inflation data.
They forecast two cuts of 50 basis points each in reserve requirements in second half of the year, with the first taking place in July. The ratio, which was last lowered in May 2012, is currently 20 percent for the nation’s biggest banks.
China’s potential growth rate may slow as a result of demographic changes and economic restructuring, the PBOC said in its first-quarter monetary policy report last week.
At the same time, “reforms will help to stimulate growth in productivity,” it said. Government efforts to curb dangers posed by a surge in shadow banking risk exacerbating the economic slowdown.
Any crackdown on interbank borrowing and wealth management products would withdraw liquidity that’s funded speculative investment, leading to bankruptcies and defaults.
Deputy central bank governor Liu Shiyu warned yesterday that shadow banking threatens to undermine the financial system and called for tougher rules to control an industry that’s driven up borrowing costs and done little to support the economy and productivity.
‘Gambling’Mindset
Shadow finance has created a “gambling” mindset, as money lured by higher returns is channeled into short-term investments, Liu said at a conference in Beijing.
Li Daokui, a former academic adviser to the PBOC, said at the same conference today that the commercial banking sector is the greatest danger to the economy and that credit risks are accumulating as growth slows. Shadow banking needs to be more transparent and brought under tight control, he said.
bloomberg.com
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