Zhou says no big PBOC stim­u­lus needed as data sug­gest oth­er­wise

The Pak Banker - - COMPANIES/BOSS -

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 to­day, 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."

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-to­high 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."

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 fasterthan-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 lesspop­u­lated ar­eas. China faces "rel­a­tively big' down­ward pres­sure from ef­forts to elim­i­nate ex­cess hous­ing in­ven­tory, which may sup­press prices na­tion­wide, he said.

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 twom­onth 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.

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