• Sat
  • Dec 27, 2014
  • Updated: 11:28pm

PBOC at the ready on growth goal: chief

Zhou Xiaochuan says the central bank will launch minor measures if mainland's economic expansion drops below Beijing's target range

PUBLISHED : Saturday, 12 April, 2014, 12:59am
UPDATED : Saturday, 12 April, 2014, 1:42am

The mainland's central bank will roll out minor measures if economic growth falls below the range targeted by the central government, People's Bank of China governor Zhou Xiaochuan said yesterday.

The State Council has set an economic growth target of about 7.5 per cent this year and had considered what the normal range of growth should be, Zhou said at the Boao Forum.

He said that if mainland gross domestic product growth was within the normal range, the government would not need to launch significant policies to boost growth. "But if the economic growth diverts from the normal range, we will use monetary policy fine-tuning, or slightly bigger adjustments [to boost growth]," Zhou said. "This is the framework of the current controlling measures."

Premier Li Keqiang said on Thursday that no short-term stimulus measures would be rolled out to foster economic growth because the government's target was flexible as long as enough jobs were created.

Zhou said the central bank had multiple objectives when deciding its monetary policy and considered not only the labour market, but also inflation, economic growth and balance of payments data. "It's difficult to compare the weight between low inflation and the creation of jobs, but I think there is a conventional practice - a low inflation target has the highest weight in our multiple objectives," he said.

Economic conditions could be inconsistent with demand for labour, with GDP growth having slowed last year while job creation increased, Zhou said, and monetary policy was dynamically adjusted with reference to the four indicators. He also said that credit growth had remained stable this year and was not too high, while voicing concern about the high level of leverage at mainland enterprises. "When credit continues to expand, the leverage level will also go up," he said.

Zhou described recent bank runs at some small lenders as being small scale, but added that they showed that a deposit-insurance system was needed as part of the mainland's financial sector reforms, which also include interest rate liberalisation and yuan exchange rate reform.

Securities regulators on the mainland and in Hong Kong on Thursday announced new rules that will allow direct share trading between the Hong Kong and Shanghai stock exchanges. The so-called through train scheme, which will let mainlanders trade a total quota of 250 billion yuan (HK$314.2 billion) worth of Hong Kong stocks through mainland brokers and Hong Kong investors to trade up to 300 billion yuan of A shares, is expected to be in place within six months.

Zhou said it would boost cross-border use of the yuan, helping it become a more convertible currency.

Joint efforts with other authorities and ministries were important when financial reforms were under way, he said, while noting that the inclusion of too many parties could hamper communication.


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According to a Chinese scholar,
China’s recent inflation rate, instead of being at 2.4%, is more probably 24% --- the decimal point has been misplaced.
Similarly, her recent genuine nominal GDP growth rate is probably negative, rather than the announced more-than-7% figure.
China’s rail freight transport growth rate is 9.3% in 2010, 8% in 2011 (these two figures are commensurate with the country’s GDP growth rates in those years), -0.8% in 2012 (a negative number for the first time in China), and -2.9% in the first-half of 2013 !
China’s freight charges are already one of the lowest in the world, much lower than the free-market rates.
If the rail growth rate is negative, how can her GDP growth rate be positive ?
There must be something wrong with China’s announced statistics.
Hence the problem of stagflation in the country.
From March 2009 to the middle of 2013, the US stock market has risen 136%, that of Germany has surged 121% --- only China’s stock market has been dropping for 6 consecutive years.
Many people say that China’s stock market hasn’t reflected the country’s economic performance.
In actuality, the exact opposite is true.
(Chinese readers: ****finance.jfinfo.com/news/20140313/00366666.shtml)
Yi Gang, PBOC deputy governor, recently admitted that China’s interest rate liberalization hasn’t benefitted the country as intended.
Adam Smith’s invisible hand may not work in China, a country with its own peculiar institutional arrangements.
The budget constraints of China’s local governments leave something to be desired.
Some of the local governments simply want to obtain all the available market loans at all interest cost.
The higher prevailing market lending rate fails to allocate scarce resources (loans) to the highest-valued uses (say, some of the SMEs).
(Chinese readers: ****money18.on.cc/finnews/news_breaking_content.html?type=1&cat=exp&aid=exp_20140412152631)
As I have said before, China’s interest rate liberalization, yuan internationalization, and capital-account opening all should be performed slowly and with great care.
The more imminent job is to develop her internal debt (bond) market.
The possible capital flight out of China, as a result of further yuan devaluation, can also help diminish the should-be-very-high inflation rate now prevailing in China.
China's domestic savings is already too high and is certainly more than sufficient to finance her investment needs (some of the investments is already wasteful, or whose returns is fast diminishing).
The country only needs those capital inflow in the form of long-term FDI which is accompanied by sorely-needed technology transfer.
Contrary to widespread opinion, further yuan revaluation is actually detrimental to China's effort in internationalising the yuan.
Eight years after the exchange reform, the yuan has appreciated by more than 35%.
The slow and steady revaluation has been attracting capital from everywhere to enter into the country, causing China's property and other asset prices to shoot up, and disturbing the country's capital control (and hence her ability to use truly independent monetary and exchange rate policy, according to the impossible trinity).
The present minor and seems-to-have-stopped yuan devaluation may encourage the market to think the yuan will resume her revaluation later in the year, thereby keeping on encouraging more capital inflow into the country, repeating the problems mentioned above and hindering the yuan's going out of the country.
For yuan internationalization to be successful , we need the foreigners to voluntarily hold lots of yuan and regard the currency as a safe haven.
This can be gradually done through China's running a trade deficit month-in and month-out, year-in and year-out, deepening her bond market, and so on.
In short, China's yuan needs to go out, NOT more foreign capital flowing into China, legally or illegally.
(Chinese readers: ****finance.caixin.com/2014-04-12/100664414.html)
The sensible policy right now is to further devalue the yuan, to restore the country’s external competitiveness (and avoid the painful and slow internal devaluation),
This is arguably better than repetitively using investment methods to stimulate the economy --- the latter may aggravate the present problems of overcapacity, diminishing returns and rising debts.
If the economy is not further reinvigorated, the banks' credit risk will further rise, and the problem may evolve into a banking crisis.
(Chinese readers: ****blog.sina.com.cn/s/blog_5ef5c4d60102ecoh.html)
Should China ease her monetary policy if further economic data show that the country's economic growth falls below the range targeted by the central government ?
My answer is no.
China's present inflation rate is estimated by some scholar to be as high as 13.5% --- this figure should be more consistent with the country’s very high M2/GDP ratio than the official figure of only 2.4% (March 2014).
If this is the case then China is now resembling the US in the 1970s --- suffering from the horrible problem of stagflation.
Today I read a rare Chinese article which shares the same viewpoint as mine --- one main reason for the present predicament is that the yuan is actually overvalued.
Given such a high degree of overvaluation, China's exports have lost their competitiveness outside, while her imports have been grabbing a larger and larger share of China's domestic market.
From the banks' balance sheets, it can be seen that most bad loans occur in the provinces which previously had strong exports figures,
and those bad loans belong mostly to the manufacturing industries.
The gradual recovery of the West only means a small gain gotten by China.
Whenever China's exports growth is negative, her economy is particularly weak, and is in a downtrend.


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