China Normal Growth Needs Only Minor Policy Changes: Zhou

China’s central bank chief said the nation needs only minor policy adjustments when growth is within a normal range, adding to signals that the government will avoid taking broader action to counter a slowdown.

The State Council has a target for about 7.5 percent growth and has studied the range, and “we don’t have to roll out significant policies” when growth is in a normal range, People’s Bank of China Governor Zhou Xiaochuan said today in Boao, China. “If growth diverts from the range, we’ll use monetary policy fine-tuning or perhaps a slightly bigger adjustment.”

Zhou’s remarks build on comments yesterday by Premier Li Keqiang, who said the nation will roll out more policies to support growth while avoiding stronger stimulus. Indicators suggesting that the world’s second-largest economy grew at the slowest pace since 2009 in the first quarter have spurred speculation that the PBOC will cut banks’ reserve requirements for the first time in almost two years.

“What Governor Zhou said today is in line with the Chinese government’s decision to not repeat an all-out stimulus,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong. “The central bank doesn’t need to change its stance fundamentally -- fine-tuning of monetary policies in specific operations will suffice.”

The PBOC doesn’t need to cut the reserve ratio and can inject funds through open-market operations to provide liquidity for growth, Ding said.

Money Supply

The central bank can also allow money supply to expand more quickly without announcing a change, Ding said. “A growth rate of 14 percent in broad money supply can make a huge difference compared to a growth rate of 13 percent,” Ding said.

China’s monetary policy targets four areas whose weighting can vary, Zhou said: growth, inflation, employment and the international balance of payments. For the PBOC, inflation is still a more important factor than employment when deciding monetary policy, Zhou said in a panel discussion at the Boao Forum for Asia.

“But employment will also be a fairly important reference indicator,” Zhou said.

The government is taking steps including railway spending and tax relief to support growth without broader monetary measures or the scale of actions used to counter the financial crisis in 2008.

The central bank added a net 55 billion yuan ($8.9 billion) to the interbank market this week, issuing fewer repurchase agreements than those that matured, data compiled by Bloomberg show. That was the first weekly injection since the Lunar New Year holiday at the start of February and comes after a total of 1.04 trillion yuan was drained in the last eight weeks.

Increasing Strains

Policy makers including Zhou are dealing with increasing strains in the financial system after years of debt-fueled economic growth. A provincial court accepted restructuring applications from manufacturer Shandong Changxing Group and its three main units under China’s bankruptcy law on March 28, two government officials with knowledge of the matter said today.

Separately, China’s Ministry of Finance failed to sell all of the bonds offered at an auction today for the first time in 10 months amid speculation short-term interest rates will climb as corporate tax payments tie up funds.

Data today from the statistics bureau showed consumer inflation in China remained below the government’s target in March while factory-gate deflation deepened. Customs administration figures yesterday showed exports and imports unexpectedly fell in March from a year earlier.

The government last month set a 2014 expansion target of about 7.5 percent. The statistics bureau on April 16 will report gross domestic product rose 7.3 percent in the first quarter from a year earlier, according to the median estimate in a Bloomberg News survey, down from 7.7 percent in the fourth quarter.

— With assistance by Xiaoqing Pi

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