China Economy

Slowdown is nothing to fret over, says PBOC chief

PUBLISHED : Monday, 22 April, 2013, 12:00am
UPDATED : Monday, 22 April, 2013, 2:50am

China's slower expansion in the first quarter was "normal" as the world's second-largest economy sacrifices growth to make structural reforms, People's Bank of China governor Zhou Xiaochuan said in the US at the weekend.

While a "mild" slowdown in the global economy did have an impact on China, the 7.7 per cent growth rate in gross domestic product was "overall normal" compared with the government's target for this year of 7.5 per cent, Zhou said outside a meeting of the International Monetary Fund in Washington at the weekend.

"China is undergoing economic restructuring, which sometimes is not in lockstep with growth," he said. "We need to sacrifice short-term growth for the purposes of reforms and structural adjustments."

The nation's expansion in the first quarter missed the 8 per cent median of economists' forecasts and slowed from a rate of 7.9 per cent in the previous three months, when Asia's biggest economy emerged from a seven-quarter slowdown.

Premier Li Keqiang said earlier this month that more efforts should be made to improve the quality and benefits of economic development, focusing on restructuring and upgrading, as the government seeks to shift from an export-reliant growth model.

Goldman Sachs, Royal Bank of Scotland, JP Morgan and ANZ Bank last week cut their estimates for China's expansion to 7.8 per cent after the worse than forecast performance in the first quarter. That would be the same as 2012's pace, which was the weakest in 13 years.

The Shanghai Composite Index sank 1.1 per cent on April 15 to its lowest level this year after the GDP data. It rebounded later for its first weekly gain in a month.

The pace of economic growth in the first quarter marked the first time in data going back two decades that four such periods have consecutively produced expansion of less than 8 per cent.

China's long-term growth rate may be limited by declines in the working-age population, income gains that are pushing up costs, and public concern at the toll on the environment from polluting factories.

A sustained shift to lower-growth would affect everything from iron-ore demand in Australia to the fortunes of companies including carmaker General Motors, who are counting on China to drive profits. It would increase challenges for global policy makers contending with Europe's debt turmoil and Japan's record monetary easing, with BHP Billiton saying GDP gains will moderate towards 6 per cent later this decade.

"Experience of China's economic growth indicates that pushing forward reform and structural adjustment can inject sustained drivers into the economy," the central bank said in a statement on its website.