China Sees Expansion Outweighing Yuan, Shadow Bank Risk
China’s Finance Minister Lou Jiwei played down yuan declines and the risks from shadow banking as central bank Governor Zhou Xiaochuan signaled that the nation’s economy can sustain growth of between 7 percent and 8 percent.
Expansion prospects are suitable and can boost global economic growth, Zhou said. Possible defaults in some wealth-management products don’t reflect a “big problem” and yuan weakness this month is within a normal range, the finance minister said.
China is stressing the resilience of the world’s second-biggest economy even as analysts forecast the slowest pace of expansion since 1990 amid government efforts to rein in leverage and expand the role of markets. Stocks tumbled today on concern banks have tightened property lending and after new-home prices rose in Beijing and Shanghai in January at the slowest pace since 2012.
“There will be ups and downs,” Lou said yesterday of recent declines in the yuan. The currency’s movement is “within normal range” and doesn’t indicate a change in economic fundamentals, he said.
Property shares slumped after the home-price data were released and as Shanghai Securities News reported that Industrial Bank Co. suspended loans to some developers. The Shanghai Composite Index fell 2 percent as of the morning break in trading.
Group-of-20 policy makers meeting in Sydney pledged a coordinated push to add the equivalent of $2 trillion to the global economy through faster growth over the next five years. The G-20 communique singled out China among emerging nations exhibiting “continued solid growth,” changing the language from a draft seen by Bloomberg News that hadn’t named the world’s second-largest economy.
New credit in China rose to a record in January, underscoring the risk of financial turbulence from defaults and bad loans, and the increasing amount of financing required to generate gross domestic product.
Shadow banking in China is more closely linked to the real economy than it is in western countries, Lou said in a brief interview on Feb. 22. The scale of the sector is not large in general, but it has grown fast recently and the PBOC is dealing with it cautiously, according to a statement yesterday posted on the central bank’s website.
The offshore yuan fell 1 percent to 6.0933 per dollar last week, a decline unseen since September 2011. The currency traded at 6.0972 as of 12:04 p.m. in Hong Kong today.
There’s “no big problem” for China to maintain steady and healthy growth, Zhou told Bloomberg News Feb. 21. “Uncertainty is always present and there’s nothing big to worry about.”
Global growth will accelerate to 2.9 percent in 2014, the quickest pace in three years, according to the median of forecasts compiled by Bloomberg. It will be 3.1 percent the following year. China’s GDP will increase 7.5 percent in 2014, slowing from 7.7 percent in 2013, the data show.
China’s economy will this year maintain the same trend of steady growth as it did last year, Lou said Feb. 22. Developed countries are too optimistic about their own growth, he said.
China’s services industry has overtaken manufacturing while its contribution to global growth is about 30 percent, Lou said in a statement posted on the People’s Bank of China website. The Asian nation will try to boost investment and consumption demand by pushing ahead with urbanization, he said.
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