China premier in­sists econ­omy 'within ap­pro­pri­ate range'

The Pak Banker - - INTERNATIONAL BUSINESS/SPORTS -

Chi­nese Premier Li Ke­qiang has is­sued as­sur­ances over his coun­try's econ­omy af­ter global mar­kets were roiled by con­cerns over its slow­ing growth.

Top global mar­kets ended the week Fri­day largely re­cov­ered from Chi­nain­duced panic selling, but mar­ket watch­ers re­main wor­ried the tur­moil in the world's num­ber two econ­omy will drag down global growth.

How­ever, a re­port by the of­fi­cial news agency Xin­hua quoted Li as say­ing "the Chi­nese econ­omy is op­er­at­ing within an ap­pro­pri­ate range and China con­tin­ues to lead the world in terms of growth". He added that "in the con­text of com­plex and chang­ing sit­u­a­tions abroad and deep-rooted prob­lems at home, we pressed ahead with progress while en­sur­ing sta­bil­ity with sus­tained ef­forts for struc­tural re­forms and tar­geted macro-reg­u­la­tion mea­sures".

"These in­cluded, among oth­ers, cuts in the re­quired re­serve ra­tio, in­ter­est rates, taxes and fees and mea­sures aimed at sta­bi­liz­ing the mar­ket, which are al­ready pay­ing off."

Li made the com­ments on Fri­day when he chaired a spe­cial meet­ing of the State Coun­cil to dis­cuss de­vel­op­ments in the global eco­nomic and fi­nan­cial field and their im­pli­ca­tions for China. Li con­ceded that "now that the tra­di­tional driv­ers for growth are not as strong, it is im­por­tant to come up with new mea­sures to bol­ster re­form and open­ing up. It is nec­es­sary to pro­vide more public goods and ser­vices, and en­cour­age mass entrepreneurship and in­no­va­tion to boost the growth mo­men­tum".

Ear­lier, a se­nior Chi­nese cen­tral bank of­fi­cial said the global stock mar­ket rout of the past week was sparked by con­cerns over a pos­si­ble in­ter­est rate rise by the U.S. Fed­eral Re­serve and not by the de­val­u­a­tion of China's yuan cur­rency. Yao Yudong, head of the bank's Re­search In­sti­tute of Fi­nance and Bank­ing, said the U.S. cen­tral bank should de­lay any rate hike to give frag­ile emerg­ing mar­ket economies time to pre­pare. He said Bei­jing's de­ci­sion to let the yuan fall in value against the dol­lar should not make it a scape­goat for the sell-off.

"China's ex­change rate re­form had noth­ing to do with the global stock mar­ket volatil­ity, it was mainly due to the up­com­ing U.S. Fed­eral Re­serve mon­e­tary pol­icy move," Yao said.

"We were wronged." Yao's com­ments, which came on the same day that state media is­sued com­men­taries de­fend­ing China's pol­icy mak­ing, show Bei­jing's sen­si­tiv­ity to sug­ges­tions it may have fum­bled eco­nomic pol­icy. The rul­ing Com­mu­nist Party has drawn much of its le­git­i­macy in past decades from fos­ter­ing eco­nomic growth and rais­ing in­comes, and wants to be seen as a re­spon­si­ble player in the global econ­omy.

Many an­a­lysts, how­ever, say a key fac­tor roil­ing mar­kets is worry China's econ­omy might be slow­ing sharply de­spite Bei­jing's ef­forts. That could have a sig­nif­i­cant im­pact on global growth, hit­ting com­pany earn­ings and re­duc­ing de­mand for com­modi­ties. Yao said China's econ­omy re­mains on a sound foot­ing, though some emerg­ing mar­ket economies face a pos­si­ble fi­nan­cial cri­sis in the years ahead stem­ming from liq­uid­ity stresses if the United States raises rates.

"So we hope the Fed­eral Re­serve could fur­ther de­lay its in­ter­est rate rise, giv­ing emerg­ing mar­kets am­ple time to pre­pare. The Fed should not only con­sider the U.S. econ­omy, but should also con­sider the global econ­omy, which is very frag­ile," he said in an ex­clu­sive in­ter­view. The Fed, which has been prep­ping in­vestors for a pos­si­ble rate hike, de­clined to com­ment.

Fed pol­i­cy­mak­ers ac­knowl­edge their ac­tions can stir global mar­kets, but ar­gue they need to stay fo­cused on growth at home. "This isn't about us. This is about de­vel­op­ments abroad and I think what we have to as­sess is how those de­vel­op­ments abroad po­ten­tially could im­pinge on us," New York Fed­eral Re­serve Bank Pres­i­dent Wil­liam Dud­ley said on Wed­nes­day as he ac­knowl­edged the mar­ket tur­moil had made a U.S. rate hike in Septem­ber "less com­pelling."

Pol­icy in­sid­ers have told Reuters that China has been so sur­prised by the global re­ac­tion to its yuan de­val­u­a­tion that it's likely to keep the cur­rency on a tight leash in the near-term to head off any cur­rency war that could spark a broader fi­nan­cial cri­sis. China had said the re­vamp in its for­eign ex­change regime that opened the gate for the yuan's sharp de­cline was an ef­fort to let mar­ket forces play a greater role in set­ting the cur­rency's value. Of­fi­cials in Washington, who had long pressed Bei­jing to move to­ward a more mar­ket-de­ter­mined ex­change rate, greeted the shift with some skep­ti­cism and in­di­cated they would watch to make sure it was not meant sim­ply to prop up China's ex­ports.

Yao said the yuan CNY=CFXS is likely to see two-way moves in the near term and may re­sume its ap­pre­ci­a­tion over time. "The (yuan) ex­change rate will be ba­si­cally sta­ble with two-way volatil­ity. We can­not rule out the pos­si­bil­ity of yuan ap­pre­ci­a­tion af­ter 2-3 years."

The sur­prise de­val­u­a­tion of nearly 2 per­cent on Aug. 11 stoked global con­cerns about slow­ing growth in the world's sec­ond-big­gest econ­omy, com­ing just days af­ter poor trade data. But Yao shrugged off con­cerns about a pos­si­ble ' hard land­ing' in China, say­ing growth was still un­der­pinned by more re­silient ser­vices and con­sump­tion. "China's econ­omy is in good shape. I'm very con­fi­dent full-year growth will reach 7 per­cent," he said.

Many econ­o­mists fear China may miss its 7 per­cent an­nual growth tar­get as re­cent data showed the econ­omy, which of­fi­cially grew at 7 per­cent in the first half, has lost steam. China has plenty of pol­icy room to cope with ex­pected liq­uid­ity strains fol­low­ing any U.S. rate rise, Yao said, though he did not ex­plain why he still urged the Fed to de­lay any move. "China has suf­fi­cient pol­icy room and ad­e­quate pol­icy tools to re­spond," he said.

The Peo­ple's Bank of China (PBOC) cut in­ter­est rates on Tues­day and low­ered the amount of re­serves that banks must hold for the sec­ond time in two months, ratch­et­ing up sup­port for a stum­bling econ­omy and a plung­ing stock mar­ket. The yuan's in­clu­sion in the In­ter­na­tional Mon­e­tary Fund's cur­rency bas­ket, known as Spe­cial Draw­ing Rights (SDR), will help ease a short­age of liq­uid­ity glob­ally, but may not hap­pen for another 20 years due to China's sus­tained cur­rent ac­count sur­plus, Yao said. "China's high sav­ings rate means China can­not pro­vide liq­uid­ity to the world via the cur­rent ac­count right now," he said.

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