Zhou Says No Big PBOC Stimulus Needed as Data Suggest Otherwise

  • China's central banker cites credit risk, reasures on growth
  • Industrial output, retail sales decelerate as property gains

Zhou Xiaochuan.

Photographer: Qilai Shen/Bloomberg

People’s Bank of China Governor Zhou Xiaochuan said major stimulus isn’t needed to support growth even as the latest batch of economic indicators suggested otherwise.

“Excessive monetary policy stimulus isn’t necessary to achieve the target,” Zhou said at a press conference in Beijing on Saturday, referring to China’s plan for at least 6.5 percent growth over the next five years. “If there isn’t any big economic or financial turmoil, we’ll keep prudent monetary policy.”

Zhou Xiaochuan

Photographer: Qilai Shen/Bloomberg

Soon after, China’s statistics bureau released data showing that industrial production and retail sales both grew less than economists forecast in January and February. Another report Friday showed the broadest measure of new credit dropped sharply after a record surge a month earlier, while inflation remains below the government target of 3 percent.

That recent data highlighted the challenge Zhou and the rest of China’s Communist Party leaders have achieving the goal of medium-to-high growth that Premier Li Keqiang outlined March 5 in his annual report to the legislature. On the one hand, growth last year was the slowest in 25 years. On the other, debt is now about 250 percent of gross-domestic product and the country posted record capital outflows between August and January.

Flanked by his three top deputies, Zhou, 68, used his fourth public appearance in less than a month to project an aura of calm and tamp down concern over volatility in the stock and currency markets while underscoring the risks posed by rising debt. "There’s no need at all to rush to buy U.S. dollars," Zhou said.

China cut the main interest rate to a record low in six successive reductions through October, and recently made another cut to the required-reserve ratio for major banks. Zhou said Feb. 26 before the RRR cut China still has monetary policy room to aid growth. In his report, Li said officials “will pursue prudent monetary policy that is flexible when appropriate.”

"There are some signs of stabilization, although the economy is still weak," said Wen Bin, a Beijing-based researcher at China Minsheng Banking Corp. "Investment is the key to decide whether a 6.5 percent minimum is achievable. The government will continue to support growth with relatively accommodative monetary policies and fiscal policies."

Stronger Data

Saturday’s data showed strength in housing helped fixed-asset investment exceed estimates with a 10.2 percent increase. Investment in real estate development gained 3 percent in the first two months from a year earlier, compared with a 1 percent increase throughout 2015. The value of property sales in the first two months of this year surged 43.6 percent from a year earlier, while property sales in some larger cities doubled.

"Recent strong credit growth and rebound in property activities point to a rebound in investment and industrial activities ahead," Wang Tao, chief China economist at UBS Group AG in Hong Kong, wrote in a note. "We maintain our 2016 GDP growth forecast of 6.2 percent, though upside risk could come from a faster-than-expected recovery in property construction."

Zhou also warned banks about increased credit risk amid rising real estate prices in the biggest cities, and said property prices have begun to diverge severely from values in less-populated areas. China faces “relatively big’ downward pressure from efforts to eliminate excess housing inventory, which may suppress prices nationwide, he said.

Seasonal Factors

The National Bureau of Statistics said industrial output rose 5.4 percent from a year earlier in January and February, compared with the 5.6 percent median estimate of economists surveyed by Bloomberg.

The industrial output slowdown was due to seasonal factors, an NBS official said in a statement. Weak global demand, deterioration in sectors such as steel and chemicals, and a slump in tobacco output weighed on factory production, the official said. Steel output fell in the two-month period, while aluminum output tumbled 7.7 percent, NBS said.

Retail sales, which have been a bright spot as China transitions from an industrial and export led economy to one more centered on consumers and services, climbed 10.2 percent from a year earlier, missing the 11 percent projected gain.

"Retail sales are struggling under the weight of weaknesses in the rest of the economy," said James Laurenceson, deputy director for the Australia-China Relations Institute at the University of Technology Sydney. "This increases the pressure on the authorities to present households with a credible economic narrative to bolster the consumer outlook."

— With assistance by Xiaoqing Pi, and Kevin Hamlin

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