China economy still faces downward pressure in ’16

Govt should ease money policy next year: think tank

BEIJING, Dec 20, (Agencies): China’s economy in 2016 still faces relatively large downward pressure and the speed of economic growth may fall further, said a top planning body’s think tank, recommending more monetary policy easing, the Economic Daily reported on Sunday.

The National Development and Reform Commission’s (NDRC) think tank recommended that China’s government continues to cut interest rates and banks’ reserve requirement ratio to bolster flagging growth in the world’s second largest economy.

China should also give way to pressure on yuan depreciation, the think tank said, in order to boost exports.

Beijing has been struggling to reach its economic growth target of around 7 percent this year, despite a raft of policy easing steps in recent months.

China’s top leaders have started an annual meeting to map out economic and reform plans for 2016, state media reported on Friday. The central bank has also been notable for its lack of a response to the UN Federal Reserve’s interest rate hike on Wednesday.

The NDRC think tank predicted that investment growth could fall to about 9 percent in 2016. From January to November this year, fixed-asset investment growth has been 10.2 percent year-on-year.

Real estate investment may be flat, the report said.

Consumption growth could face a year of single digit growth in 2016, while exports may grow slightly, said the think tank.

The think tank recommended expanding China’s fiscal deficit to support major projects and possibly issuing more central and local government bonds.

The stock market should be stabilised and efforts made to fend off the risk of large-scale capital outflows, the think tank also proposed.

China’s annual economic growth is likely to slow to 6.8 percent next year from an expected 6.9 percent this year, the People’s Bank of China said in a working paper published.

The world’s second-largest economy still faces downward pressure and the impact of fiscal and monetary policies that were rolled out this year will be evident by the first half of 2016, the central bank said in the research report.

“Although downward pressures on growth will persist for a while due to overcapacity, profit deceleration, and rising non-performing loans, we expect that the number of positive factors will gradually increase in 2016,” it said.

Recent appreciation in the yuan’s real effective exchange rate (REER) has put pressure on China’s exports, the central bank report said, adding that keeping the yuan’s trade-weighted exchange rate relatively stable could help exports.

Meanwhile, the Chinese Academy of Social Sciences (CASS), a top government think tank, predicted in its “blue book” the economy could expand at a slower pace between 6.6 percent and 6.8 percent in 2016 due to weak external demand and cooling domestic investment.