People’s Bank of China

Look past China’s short-term cash squeeze to better quality growth, central bank official says

Beijing will press on with its prudent course and work to tamp down risks in the financial market

PUBLISHED : Tuesday, 05 December, 2017, 2:04pm
UPDATED : Tuesday, 05 December, 2017, 8:52pm

China’s central bank will “largely” stay on its neutral and prudent monetary course given the overall good state of the country’s economy, its assistant governor said on Tuesday.

The People’s Bank of China (PBOC) would also continue to try to direct capital towards the real economy rather than speculation, Liu Guoqiang said on the sidelines of the World Internet Conference in Wuzhen, Zhejiang province.

“The external environment is fairly good, while the domestic foundation for economic stability is also good following supply-side reforms,” he said.

The International Monetary Fund is forecasting China’s economy to grow by 6.8 per cent this year, easing to 6.4 per cent next year. The economy posted 6.9 per cent growth in the first three quarters.

China has also kept capital flows under control and its exports have remained healthy, despite two interest rate rises by the US Federal Reserve this year and the US’ planned tax cuts.

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Liu said the specific growth figures were increasingly being played down and the overall tone was to make progress while ensuring stability.

That sentiment was reflected in Chinese President Xi Jinping’s political report to the Communist Party’s national congress in October, when he said China would focus on the quality of growth, making no mention of a specific target.

Nevertheless, most financial institutions and economists say the administration will aim for growth of “around 6.5 per cent” for 2018, compared to “6.5 per cent or higher if possible” for this year.

At the same time, domestic interbank rates are on the march with the central bank’s refusal to pump more money into the market in its push to minimise risks from speculation.

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“Some financial institutions face a cash squeeze in the short term,” Liu said. “The real economy is barely affected. And, after some time, that capital will be guided to the real economy from the financial market to improve the economy’s development.”

Liu said the various financial risk control measures would help guide market expectations.

“The bigger the risk controls are, the lower the risk people will expect for next year. It will therefore lift market confidence,” he said.

Liu was promoted to PBOC assistant governor a year ago, after a decade overseeing macroeconomic analysis and policymaking at the Central Leading Group for Financial and Economic Affairs, now a prime economic decision-making body under Xi.