18th Party Congress

Optimism in China recovery but West still a worry

New investment projects have helped China recover from the global slowdown but the spill-over effects of external policies are unclear

PUBLISHED : Friday, 09 November, 2012, 12:00am
UPDATED : Friday, 09 November, 2012, 7:32am

Central bank chief Zhou Xiaochuan was cautiously optimistic about the mainland's economic prospects yesterday but warned about uncertainties in the pace of recovery in Europe and the United States.

"The growth slowdown has gradually stabilised, with some indicators starting to improve in the third quarter, particularly in September," Zhou said in Beijing yesterday following a group discussion by Communist Party congress delegates from the banking and financial sector. "I personally think the trend has continued in October."

In contrast, the outlook for Western economies remained unclear and it was hard to gauge the possible "spill-over effects" of easing policies adopted by Europe and the US, the People's Bank of China governor said. Fiscal issues that Washington needed to tackle by the end of the year also added to uncertainties, he said.

As a result, Beijing would "maintain some continuity" in its policies next year, but at the same time keep enough flexibility to cope with external challenges.

A gradually recovering mainland economy will allow congress delegates to focus more closely on a once-a-decade leadership transition that will follow the week-long party congress, which opened yesterday.

Zhou's remarks indicate that an accommodative monetary policy and an acceleration in the approval of new investments have helped the world's second-largest economy recover from the global slowdown.

The mainland will today release key monthly economic data for last month, including inflation, industrial production, investment and retail sales.

Ma Jiantang , head of the National Bureau of Statistics, also hinted that the October data would show some improvement. The results would make people feel "more confident" about the economy's fourth-quarter performance, he said.

The mainland's economic growth rate sank to a 14-quarter low of 7.4 per cent in the third quarter following 7.6 per cent growth in the second. But the October purchasing managers' index for manufacturing and services revealed a pick-up in business due to a rise in new orders.

People's Bank of China vice-governor Yi Gang predicted that gross domestic product growth this year would "definitely" exceed the government's target of 7.5 per cent.

"We can clearly see that the economy has shown signs of strengthening since the start of this quarter," Yi said. "Demand from all sides has been good."

Meanwhile, the level of inflation was "favourable" and was likely to stay between 2 per cent and 3 per cent this year, he said. Yi added that a prudent monetary policy was "appropriate" and that lending growth would be kept at a suitable level this year.

Both Zhou and Yi said the mainland would push forward with market-oriented reforms on the exchange rate mechanism and the interest rate system.

Yi said the yuan's exchange rate was getting steadily closer to equilibrium. .

However, Zhou warned that Beijing needed to study the possible impact of monetary easing overseas, including the new outright monetary transactions programme (OMT) adopted by the European Central Bank and a third round of quantitative easing by America's Federal Reserve.

Additional reporting by Jane Cai