China’s Slowing Growth in M2 Hasn’t Affected Economy, Ma Says

  • Fundamentals support stable exchange rate, PBOC economist says
  • Data on Friday showed economic stabilization faltered in July

PBOC Economist on Money Supply, FX, Economy

China’s slowing growth in money supply hasn’t affected the economy and the nation’s fundamentals support a stable foreign-exchange rate, the top economist at the central bank’s research bureau said.

The country’s stabilizing hoard of foreign reserves, which were little changed at $3.201 trillion in July from the previous month, signal the exchange rate is near equilibrium, Ma Jun, chief economist of the People’s Bank of China’s research bureau, wrote in a note Saturday. He added China’s corporate debt was high by international standards and that it should reduce the leverage by cleaning up “zombie” companies and implementing debt-to-equity swaps.

Ma Jun

Photographer: Brent Lewin/Bloomberg

Ma’s remarks came after official data on Friday indicated that a recent economic stabilization faltered in July, with factory output, retail sales and investment all missing estimates, and the broadest measure of new credit rising at the slowest pace in two years. He pointed to the International Monetary Fund’s forecasts for China’s growth as a sign of confidence in the world’s second-largest economy.

The nation should weaken its focus on gross domestic product in the future and put more emphasis on a stable job market, he said.

The broad M2 money supply increased 10.2 percent in July, the slowest pace since April 2015, PBOC data showed Friday. The yuan climbed 0.12 percent against the U.S. dollar in July, halting three months of declines.

China’s leaders plan to underpin demand with fiscal support and view interest rates as being at “appropriate” levels, according to glimpses of their thinking seen in the IMF’s yearly review of the economy. Its GDP is projected to expand 6.6 percent in 2016 and 6.2 percent in 2017, while inflation is seen picking up to around 2 percent this year, the IMF said.

China’s economy will probably grow 6.5 percent in 2016 and 6.3 percent in 2017, according to estimates compiled by Bloomberg.

— With assistance by Feifei Shen

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