Bank of Israel Governor Stanley Fischer said the Chinese government has tools including monetary policy to protect growth should the pace of economic expansion be threatened.
“Every time they’ve been faced with a growth challenge, they’ve responded very quickly and gone back to growth very rapidly,” Fischer said in a Bloomberg Television interview yesterday at the Boao Forum for Asia on the tropical island of Hainan in southern China. “They can’t keep growing at anything like these rates forever, but forever looks a little while off at the moment.”
Premier Wen Jiabao plans to “fine-tune” policies as needed, as weakness in exports and a cooling housing market restrain an economy that probably grew at the slowest pace in almost three years in the first quarter. The size of the nation’s gross domestic product means that shaving 1 percentage point off growth would cost the world economy $50 billion, Fischer said.
A so-called hard landing of Chinese growth below 6 percent “would certainly put a dent in the global economy,” said Fischer, 68. “There are scenarios where you can see that happening.”
Wen on March 5 set the annual growth target at 7.5 percent, the first time below 8 percent since 2004. Fischer said he’s been told that, based on previous years when the target was exceeded, this year’s goal means the actual expansion may be 8.5 percent or 9 percent.
The ruling Communist Party oversaw an unprecedented 17.5 trillion yuan ($2.8 trillion) of lending over 2009 and 2010 that helped the nation to lead the recovery from the global financial crisis. In addition to the central government’s plans, regions have their own growth targets.
“The actual growth rate is determined as much by what the provinces do as by what the central government says,” Fischer said in yesterday’s interview.
China’s gross domestic product probably expanded 8.3 percent in the first quarter from a year earlier, according to the median estimate of 26 analysts surveyed by Bloomberg, down from 8.9 percent in the fourth quarter.
A stronger reading for a Chinese manufacturing gauge April 1 failed to end predictions for policy loosening as analysts described the gain as seasonal, and a separate survey showed exporters struggling. Mizuho Securities Asia Ltd. predicted fiscal spending and reserve-ratio cuts for banks.
Fischer’s views carry international clout because of a four-decade career spanning academia, banking and policy-making. As a professor at the Massachusetts Institute of Technology, he was Federal Reserve Chairman Ben S. Bernanke’s thesis adviser and taught European Central Bank President Mario Draghi before helping to end financial crises in Mexico, Russia and Asia as the International Monetary Fund’s No. 2 official in the 1990s.
Fischer, whose Bank of Israel term ends in 2015, has earned a reputation as a trailblazer, beating the Fed and ECB by a day in cutting interest rates following Lehman Brothers Holdings Inc.’s collapse, reducing the base rate by half a percentage point to 3.75 percent.
The ECB has acted correctly to stem the euro area’s debt crisis and the region is “beginning to get over the hump,” Fischer said. The U.S. economy is also improving, even as the government needs to put its “fiscal house in order.”
The price of oil and Europe’s crisis are both “very serious risks” to the global economy, Fischer said. Crude has risen about one-third over the past six months. Oil costs “may be more containable than we think” because nations can use strategic reserves, he said.
Even so, “I have a lot of confidence that Asia will come through this without a major disruption in growth,” Fischer said. “There are a lot of things to keep watching out for.”
--Stephen Engle, Scott Lanman, Alisa Odenheimer. With assistance from Kismet Singh in Hong Kong. Editor: Paul Panckhurst
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