Zhou Cautions on Lingering Crisis as China’s Exports Rebound

Central Bank Governor Zhou Xiaochuan
Central Bank Governor Zhou Xiaochuan listens during a news conference at the 18th National Congress of the Communist Party of China in Beijing on Sunday. Photographer: Tomohiro Ohsumi/Bloomberg

Central bank Governor Zhou Xiaochuan highlighted the effects on China of what he termed five years of crisis, adding to officials’ cautions on the economic outlook even after a rebound in exports.

“Overall our macro-economic controls have been successful,” Zhou said at a briefing in Beijing yesterday as part of the Communist Party congress that begins a once-a-decade leadership transition. “But of course the financial crisis didn’t finish, and became a European debt crisis, and therefore we are still continuing to deal with it.”

China’s export growth accelerated in October and the nation’s trade surplus swelled to $32 billion, the highest in almost four years, a customs report showed Nov. 10. While the improvement adds to signs that the next generation of leaders may be aided by a strengthening economy, Commerce Minister Chen Deming said that the trade outlook is “grim” and economic planning chief Zhang Ping said the nation’s recovery needs stronger foundations.

“Policy makers are probably trying to down play the recent growth rebound primarily because of concerns on external demand risks,” said Helen Qiao, a Hong Kong-based economist for Morgan Stanley. “In view of the deleveraging need in the U.S. and Europe in the next three to five years, it is hard to be over-optimistic.”

The Shanghai Composite Index rose 0.3 percent as of 9:42 a.m. local time, set to snap a five-day decline.

Zhou’s Role

Asked about his future in the job, Zhou, 64, said that one retires at a “certain age.” Zhou is China’s longest-serving central bank governor since the 1960s, with close to a decade in the role, and the publication of a collection of his speeches, articles and interviews fueled speculation that he could be set to retire.

Liu Li-Gang, a Hong Kong-based economist with Australia & New Zealand Banking Group Ltd., said yesterday that he expects a replacement to be announced before the end of this year. Zhou’s status may become clearer when the party this week names its central committee. If he’s no longer a member, that could signal a change.

Zhou said changes to the interest-rate system should be at a “moderate” pace and signaled that he saw less risk from so-called shadow banking in China than in developed economies. Asked about the central bank’s recent use of reverse repurchase agreements, Zhou said that they were short-term and more flexible than bank reserve requirements.

Yuan’s Level

In a statement before the briefing, the central bank reiterated that the Chinese currency, the yuan, is close to what officials describe as an “equilibrium” level. The currency has strengthened about 2.4 percent since July 25 after a 1.6 percent decline since the start of the year.

The 11.6 percent rise in China’s exports last month was more than the 10 percent estimate in a Bloomberg News survey of economists and September’s 9.9 percent gain. Imports rose 2.4 percent, the same pace as the previous month.

“Based on the data, signs of apparent economic stablization and rebound emerged in September and October,” Zhang, head of the National Development and Reform Commission, said Nov. 10 during the congress. “But we still can’t relax and our analysis concludes that the foundations for stabilization are not solid enough.”

China needs to prepare for prolonged challenges including the debt turmoil in some countries and sluggish global growth while solving domestic issues such as overcapacity, Zhang said.

Easing Seen

“Policy easing” will help to boost economic growth above 8 percent this quarter and in the first half of next year, said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. Inflation will lead to tightening and slower growth in the second half, Zhang said.

Export gains have picked up from a 1 percent pace in July and 2.7 percent in August. Like the NDRC’s Zhang, Zhou said that China’s data in September and October had pointed to the economy stabilizing.

Industrial production, fixed-asset investment and retail sales accelerated in October, government reports showed on Nov. 9, signaling that economic growth will exceed Premier Wen Jiabao’s 7.5 percent target for his last year in office. China is confident it will achieve expansion this year of at least 7.5 percent, Zhang said.

“We are still cautious, but the robust export growth around 10 percent for two consecutive months might truly point to a real rebound,” said Lu Ting, chief Greater China economist at Bank of America Corp. in Hong Kong. The “elevated” trade surplus may mean the central bank will be reluctant to cut lenders’ reserve requirements, Lu said while maintaining his forecast for “at most” one 0.5 percentage-point reduction by year-end.

— With assistance by Henry Sanderson, and Aipeng Soo

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