PBOC’s Zhou Says Slower Growth Needed for Restructuring

People's Bank of China Governor Zhou Xiaochuan
People's Bank of China Governor Zhou Xiaochuan said that China is "undergoing economic restructuring, which sometimes is not in lockstep with growth." Photographer: Tomohiro Ohsumi/Bloomberg

China’s slower expansion in the first quarter is “normal” as the world’s second-largest economy sacrifices growth to make structural reforms, People’s Bank of China Governor Zhou Xiaochuan said.

While a “mild” global slowdown is affecting China, the 7.7 percent gain was “overall normal” compared with the government’s 2013 target of 7.5 percent, Zhou told Bloomberg News outside a meeting of the International Monetary Fund in Washington on April 20.

Investors are assessing where the nation’s growth rate may settle as the working-age population declines, costs rise and officials wrestle with the environmental toll from polluting factories. A sustained shift to a lower-growth gear will affect everything from the outlook for the world’s automobile makers to iron-ore demand in Australia as BHP Billiton Ltd. predicts expansion will moderate toward 6 percent later this decade.

“We should appreciate and get used to this new normal of slower growth which has seen a stable job market and moderate inflation pressures,” said Chang Jian, a Hong Kong-based economist at Barclays Plc who formerly worked for the World Bank. She sees an annual rate in the 6 percent to 8 percent range over the next 10 years.

Expansion in the first quarter missed the 8 percent median of economists’ forecasts and slowed from 7.9 percent in the previous three months, when Asia’s biggest economy emerged from a seven-quarter slowdown. Premier Li Keqiang this month urged more efforts to improve the quality and benefits of economic development as the government seeks to shift away from an export-reliant model.

Growth ‘Sacrifice’

“China’s undergoing economic restructuring, which sometimes is not in lockstep with growth,” Zhou said. “We need to sacrifice short-term growth for the purposes of reforms and structural adjustments.”

Asian stocks climbed today, led by Japan, as the absence of opposition to Japanese stimulus efforts at a Group of 20 meeting in Washington bolstered the outlook for that nation’s economy and demand in the region. The MSCI Asia Pacific Index rose 0.7 percent as of 1:29 p.m. in Tokyo. In China, the Shanghai Composite Index fell 0.4 percent after an April 20 earthquake that killed at least 188 people.

China’s economy had a stable start in the first quarter and growth was within a reasonable range, Zhou said at the IMF meeting, according to a statement on the PBOC’s website.

Government Power

Premier Li pledged in March to open the economy to more market forces and strip power from the government as part of efforts to restructure. State-owned companies and the country’s new wealthy class may stand as barriers after benefiting from controls on borrowing and savings rates, underpriced resources and the absence of property taxes.

PBOC Deputy Governor Yi Gang said April 17 in Washington that the yuan’s trading band will widen “in the near future,” and that China needs to make its capital account fully convertible. Revamping the value-added tax system for businesses is a priority in fiscal reforms, Finance Minister Lou Jiwei said last week in Washington.

Goldman Sachs Group Inc., Royal Bank of Scotland Plc, JPMorgan Chase & Co. and Australia & New Zealand Banking Group Ltd. last week cut their estimates for China’s 2013 expansion to 7.8 percent. That would be the same as 2012’s pace which was the weakest in 13 years.

Asia, Europe

Elsewhere in Asia, Taiwan’s jobless rate rose in March, a report showed today.

Euro-area consumer confidence worsened in April, the European Commission is forecast to say today. In the U.S., the Federal Reserve Bank of Chicago’s national activity index may show a lower reading in March compared with February, while the National Association of Realtors is expected to say sales of previously owned U.S. homes rose last month to the highest in more than three years, according to Bloomberg surveys.

In China, “structural adjustment has scored notable achievements,” according to a PBOC statement. The contribution of service industries to economic growth in the first quarter exceeded that of manufacturing for the first time, it said.

In his statement to the IMF, Zhou reiterated that changes in China’s financial sector will involve “further interest-rate liberalization, capital account convertibility and exchange rate reform.” While inflation has been “relatively stable,” the government remains on guard due to rising costs for labor and raw materials, pricing reforms and excessive global liquidity, Zhou said.

March consumer prices increased 2.1 percent from a year earlier, after rising 3.2 percent in February which was the quickest pace in 10 months.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE