Economy concerns understandable- China
China’s economy is showing signs of improvement while capital outflows from the country are moderating, top Chinese officials said on Sunday (March 20), seeking to shore up investors’ confidence after recent market volatility.
Chinese leaders have repeatedly tried to reassure jittery financial markets and China’s major trading partners that Beijing is able to manage the slowing economy, following a slide in the country’s stock market and depreciation of the yuan.
Recent data, until early March, including fixed-asset investment and employment, showed that the economy is improving, Vice Premier Zhang Gaoli told a high-level economic forum.
“Everyone is really concerned about the recent stock market fluctuations and even the online finance products. This is understandable. My personal point of view is that as long as the Chinese economy doesn’t see risks appearing in the financial or business sector, no major issues will appear in the Chinese economy,” he said.
China’s manufacturing output in January and February grew at its weakest pace since 2008, according to data released by the National Bureau of Statistics earlier this month.
Finance Minister Lou Jiwei told the forum that he saw little market impact caused by Moody’s recent downgrade of its outlook on China’s government debt.
On March 2, Moody’s Investors Service lowered its outlook on Chinese government debt to “negative” from “stable”, citing uncertainty over authorities’ capacity to implement economic reforms, rising government debt and falling reserves.
Lou said that the publishing of reform proposals since the downgrade gave a stronger indication of China’s plans to tackle areas of concern highlighted in Moody’s report.
“We don’t need to make representations to each of them (the ratings agencies), the facts speak for themselves. The market reaction and the promises of the government and the moves we made next, our work, show our confidence and our ability to act on this confidence,” said Lou.
Central bank governor Zhou Xiaochuan told the same forum that capital outflows out of China have showed a significant easing as concerns about a slowdown in the world’s second-largest economy abate.
Recent data showed net foreign exchange sales by the central bank and commercial banks dropped in February as the yuan stabilises, partly due to the dollar’s broad retreat as expectations cool on further interest rate rises by the U.S. Federal Reserve.
Some short-term speculative money may be leaving China, a reversal of the trend a few years ago when China saw big capital inflows, but such money flight is not worrisome, Zhou said.
“In these types of circumstances if more (capital) goes out then more goes out. After a while if the overall judgement on the Chinese economy, the judgement on reform and development as well as the judgement on the exchange rate level can return to rationality, then that period is over after all. At the moment it appears that if we look at the data now it’s very clear that there has been a slowdown (in outflows), that’s all I’ll say on that,” said Zhou.
Analysts say China’s central bank still faces a tough job stemming capital outflows, citing persistent downward pressure on the world’s second-largest economy.
But IMF head Christine Lagarde, sounded a note of confidence in China’s management of its exchange rate.
“It’s clear that we are living and will continue to live with more volatility. My assessment is that the mechanism that is in place in China in relation to the currency rate regime offers sufficiently, I mean, sufficient flexibility which is neither too wide or too narrow that allows enough variation up and down,” she said.
The government has set a growth target of 6.5 percent to 7 percent for 2016. The world’s second-largest economy expanded by 6.9 percent in 2015, its slowest pace in 25 years.
Beijing has pledged to make monetary policy more flexible this year even as it leans more on increased fiscal spending and tax cuts to support economic growth and cushion the pain from structural reforms.
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