“The ongoing pace of economic growth is within expectations, but the external environment remains grim and poses difficulties and challenges,” the official Xinhua News Agency said yesterday, citing a meeting of the Communist Party’s Politburo. The meeting also determined that maintaining stable growth is still the top priority, Xinhua said.
The Politburo reiterated that China will pursue a “prudent” monetary policy and “proactive” fiscal policy, signaling that authorities are trying to stem a six-quarter slowdown in the world’s largest economy without resorting to the level of stimulus implemented after the global financial crisis.
“If the economic situation worsens, China can ease more,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. Options include further reductions in banks’ reserve requirements and in benchmark interest rates, he said.
Yesterday’s statement, while not representing a change in policy wording, keeps options open for China to take additional measures if needed, Zhang said.
China will probably retain the “prudent” monetary policy stance through at least mid-2013, according to nine of 14 economists surveyed by Bloomberg News from July 24 to 30. Four said China will alter its position this quarter and one said it will change in the following three months.
The government adopted the “prudent” language in December 2010, changing from “moderately loose,” following one interest-rate increase and preceding four more.
“At the end of the day, we have to watch what the government will do instead of what it says,” Zhang said. Bank credit is a key measure to monitor, he said.
The economy may be starting to pick up this quarter. A manufacturing purchasing managers’ index for July may have risen to 50.5 from 50.2 in June, according to the median estimate of 24 economists before a government report due today. The yuan strengthened the most in more than four months yesterday on speculation policy makers worldwide will boost efforts to revive global growth.
China’s current-account surplus widened to $59.7 billion in the second quarter from $23.5 billion in the first quarter, data from the State Administration of Foreign Exchange showed yesterday. There was a certain degree of capital outflow in the first half that didn’t signify a “massive withdrawal,” SAFE said in a statement.
Premier Wen Jiabao reiterated that China will put more emphasis on stabilizing growth and intensify “fine-tuning” while “unswervingly” implementing property controls and preventing home prices from rebounding, Xinhua said in a separate story about a meeting held July 26 with people outside the Party. Downward pressure on the domestic economy is relatively large and low global growth will persist for a “fairly long period,” the report said, citing Wen.
China will use different monetary policy tools to ensure stable growth in money supply and bank credit, Wen said.
Local bank branches are being instructed to give credit support to province-level vehicles and those backed by China’s 100 richest counties, China Securities Journal said yesterday, citing unidentified people. It didn’t identify any of the banks. The newspaper is published by Xinhua.
Relaxing control of lending to local governments would mark a shift in strategy as leaders try to boost economic growth that slowed to the least in three years. China had been seeking to reduce regional debts that ballooned to 10.7 trillion yuan ($1.7 trillion) on loans made in the aftermath of the global financial crisis.
“Measures to increase public investment, to be financed largely by bank credit, will be the most important ones in the near term” to aid growth, Wang Tao, a Hong Kong-based economist at UBS AG, said in a research note yesterday.
At the same time, Chinese leaders are “keen to avoid making a similar mistake” of using a credit boom to finance another round of fiscal stimulus they in 2008-09, which “left serious negative consequences” for the economy, Wang said.
Lending support will focus on roads, railways, natural gas and clean energy projects, China Securities Journal said.
“We must see with a clear mind that there are difficulties and risks in the current economic situation that can’t be underestimated,” Wen said, as cited by Xinhua. President Hu Jintao said China will try to diversify export markets and will “expand and stabilize” employment, Xinhua reported.
The central government has cut interest rates twice since early June, reduced banks’ reserve requirements three times since November, sped approvals for investment projects and boosted railway spending as economic growth decelerated. Some cities are also increasing stimulus efforts, with Changsha last week unveiling an 829 billion yuan investment plan.
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