Bullish Chinese policymakers cite strong growth and stable yuan
Policymakers in China are pushing a bullish message on the economy after a solid first quarter, pointing to a slowdown in capital outflows and a stable yuan after a sell-off last year stoked fears of instability.
Speaking at a Group of 20 summit meeting of the world’s top economies in Washington last week, Finance Minister Xiao Jie said an increasing number of positive signs were seen in the Chinese economy in the first quarter gross domestic product report.
Beijing was confident of reaching the government’s 6.5 per cent GDP growth target this year, Xiao said in a notice on the Ministry of Finance’s website on Saturday.
Separately, People’s Bank of China adviser Sheng Songcheng said the improving economy had been matched by a stable yuan, with signs that capital was starting to return to China.
“After breaking and even reversing expectations for yuan depreciation, there are signs of a trend of capital returning to China,” Sheng wrote in Monday’s editorial in Financial News, a newspaper owned by the PBOC.
Sheng reiterated that interest rates were on an uptrend, underscoring Beijing’s shift to a tighter policy stance to temper rampant credit growth and put the economy on an even keel.
Data from last week showed that China’s economy grew a faster-than-expected 6.9 per cent in the first quarter, boosted by higher government infrastructure spending and a gravity-defying property boom.
Capital outflows from the mainland eased sharply in the first quarter and cross-border flows were more balanced as expectations for further yuan depreciation had weakened significantly, the spokeswoman for the foreign exchange regulator said on Thursday.
Sources told Reuters last week that China had relaxed some curbs on capital flows as officials indicated increasing confidence that pressure on the yuan and foreign exchange reserves had diminished, thanks largely to a pullback in the surging US dollar.
But some economists say it is too early to say China has won the war against capital outflows, and that it is unlikely Beijing will start a broad roll-back of capital control measures in the near future.
“We expect the yuan to come under pressure again at some point, notably at times of another global strengthening of the US dollar,” Louis Kuijs, an analyst at Oxford Economics, said in a note on Friday.
“We still do not rule out further tightening if the pressures on the FX market were to rise substantially again.”
A massive build-up of debt over the past several years has been highlighted by policymakers, economists and the International Monetary Fund as a risk to financial stability in China.
In his Washington speech, Xiao said that China was making progress on supply-side structural reforms, which Beijing has been promoting as a way of reducing excess industrial capacity and cutting its reliance on debt-driven growth policies.