Chinese officials and economists at World Economic Forum try to restore confidence in mainland’s economy
As the World Economic Forum meeting began in China on Wednesday, mainland government officials and economists were quick to try restore global confidence in the world’s second-largest economy – days after the release of dismal economic data.
It is normal to see volatility of economic indicators ... We are able to hit this year’s growth target
Xu Shaoshi, head of the National Development and Reform Commission, repeated the official line about the economy on the sidelines of the forum’s meeting in Dalian, in northeast China's Liaoning province.
He said that the mainland’s economic fundamentals were good and the economy remained within reasonable range, while jobs and prices were very stable.
His comment came in the wake of poor trade data for August and the record monthly fall of foreign exchange reserves last month amid concerns about staggering economy and capital outflows.
“It is normal to see volatility of economic indicators,” Xu said. “Expectations and confidence must be held firmly. We are able to hit this year’s growth target.”
The stock market correction is a bit overshot ... Now the price-earnings ratio is comparable to that of the United States. Speaking objectively, there are shells in the beach that can be collected
His remarks echoed the comments of Liu He, the commission’s deputy director and a key policy adviser to President Xi Jinping, who said during a meeting in Zhejiang province that reforms in state firms, finance and fiscal sectors were the key to weathering hard times.
Liu said economic difficulties were normal and would pass. He also noted the rise of China’s middle-income groups and called for efforts to overcome middle-income traps.
However, the wealth of middle-income groups has been greatly wiped out during the recent round of stock market routs, despite Beijing unveiling measures, including two benchmark interest-rate cuts and bans on the short selling of stocks to try to end growing concerns.
"The stock market correction is a bit overshot,” he said. “Now the price-earnings ratio is comparable to that of the United States. Speaking objectively, there are shells in the beach that can be collected.”
A price-earnings ratio – a company’s share price, divided by its earnings per share – is an important indication of comparative value.
Li said only some of the policies taken so far to stabilise market had proved satisfactory and work needed to be done to ensure exchange-traded funds and index futures were better used to calm down the stock market.
He proposed an “acupuncture-style stimulus” to help traditional sectors that have been “losing speed at a surprising pace” to weather difficulties.
Li said the central bank’s policies should focus on creating long-term financing tools to effectively lower the funding costs of the real economy.
He referred to one particular problem of long-term projects being financed only by short-term tools.
“A 30-year project was seeking funds via two-year financing tools carrying an interest rate above 10 per cent – a practice that is suicidal and unbearable for any economy,” Li said.
He suggested that instead, the government should support issuance of long-term bonds to facilitate industrial investment, while the monetary authorities needed to take measures to lower interest rates of long-term bond products so they were close to the treasury bond yields.
Li said there should be no more delays in processing planned investment projects and said reform details, especially state-owned enterprise reforms, should be unveiled as soon as possible.
With the possibilities that property development investment has hit the bottom, an improvement in fixed-asset investment could offer hopes for stabilising the economy from the second half of this year till the first quarter of 2016.
“We admit that there are problems and acknowledge it requires arduous policy adjustment, but we have ammunition,” Li said.
“If policies are in place and effectively implemented, we could see a U-shaped recovery within three years.”
The global market also raised concerns after the People’s Bank of China announced a one-off devaluation of the yuan on August 11. It fuelled expectations of a further depreciation of the yuan and triggered capital outflows.
However, Li played down the impact of the yuan’s depreciation on global market.
“The global reaction of the yuan’s depreciation is overdone – we should look at the issue calmly.”
He said the yuan had become a quasi-global currency and the exchange rate policy would affect overseas markets.
“Given that, there is no great room for the adjustment of the yuan’s exchange rate.”
