PBoC governor Zhou says China’s 6.9% growth ‘may continue’ in 2H

China will continue to pursue a proactive fiscal policy and a prudent monetary policy, PBoC says


BEIJING • Economic indicators show “stabilised and stronger growth” and the momentum of a 6.9% expansion in the first six months of 2017 “may continue in the second half (2H)”, People’s Bank of China (PBoC) governor Zhou Xiaochuan (picture) said.

Imports and exports increased rapidly, fiscal income grew and prices have been steady, Zhou said, according to a statement the central bank released on Saturday after he attended meetings of global finance chiefs last week in Washington.

The effects of a campaign to rein in leverage are showing, and China will monitor and prevent shadow banking and real estate risk, he said.

China’s broadest gauge of new credit, released on Saturday, exceeded projections, signalling that the funding taps remain open even as the government pushes to curb excessive borrowing.

“Positive progress has been achieved in economic transformation,” the statement said. “China will continue to pursue a proactive fiscal policy and a prudent monetary policy, with a comprehensive set of policies to strengthen areas of weakness.”

Zhou’s comments, delivered before a gathering of Group of 20 finance ministers and central bankers, come before the release of third-quarter (3Q) gross domestic product (GDP), scheduled for Oct 19. Economists project a moderation to 6.8% growth from the 6.9% pace in the 2Q amid government efforts to reduce overcapacity and ease debt risk.

Reform Call

Steady growth in the world’s secondlargest economy gives policymakers additional room to push ahead with reforms.

Zhou recently made a fresh call to further open up the financial sector, warning that such an overhaul will become more difficult if the window of opportunity is missed. Some analysts said they expect reforms will pick up should President Xi Jinping further consolidate power after the 19th Party Congress starting this week.

Zhou was also in Washington for meetings of the World Bank and International Monetary Fund (IMF), where officials expressed an increasingly upbeat economic outlook. He was scheduled to speak on a global economy panel yesterday with US Federal Reserve chair Janet Yellen, Bank of Japan governor Haruhiko Kuroda and European Central Bank VP Vitor Constancio.

The IMF last week increased its global growth forecast amid brightening prospects in the world’s biggest economies. It also raised its China growth estimate to 6.8% this year and 6.5% in 2018, up 0.1 percentage point in each year versus July.

“We expect that the authorities can and will maintain a sufficiently expansionary macro policy mix to meet their policy target of doubling 2010 GDP by 2020,” Changyong Rhee, the fund’s Asia and Pacific director, said at a briefing last Friday in Washington. “However, as this expansionary policy comes at the cost of a further large increase in debt, it also implies that there’s more downside risk in the medium-term due to this rapid credit expansion.”

Aggregate financing to the economy stood at 1.82 trillion yuan (RM1.17 trillion) in September, the PBoC said on Saturday, compared to an estimated 1.57 trillion yuan in a Bloomberg survey and 1.48 trillion yuan the prior month.

A report last Friday showed that exports and imports both accelerated. Growth is forecast to slow after a robust 1H, when it started the year with the first back-to-back quarterly acceleration in seven years, then surprised economists by matching that 6.9% expansion again in the 2Q.

Meanwhile, the PBoC’s new tailored move to steer credit to small businesses, farmers and startups also indicates that the leadership remains vigilant about economic growth while also refraining from easing monetary policy across the board to contain overall leverage.

The PBoC said on Sept 30 it will reduce how much cash some banks must hold as reserves from next year, with the size of the cut linked to lending to parts of the economy where credit is scarce. It has kept benchmark lending rate at a record low for almost two years.

“Growth in China is very strong,” Markus Rodlauer, IMF’s Asia and Pacific deputy director, said at the briefing. “There’s no need for expansionary fiscal and monetary policies.”

Zhou also told finance chiefs that China encourages private-sector investment in Africa, and that it has expanded rapidly in recent years.

“Experience shows a large demand of cross-country infrastructure in Africa, especially in the energy and power sector,” the statement said, adding that development banks have “huge potential” and can do more for the continent. — Bloomberg