China’s Economy to Bottom This Quarter

on Jun 20, 2012

In an interview at a forum in Beijing on June 16, Chen Yulu, an adviser to the People’s Bank of China (PBOC) said that China’s economy will hit a low point this quarter and rebound in the following three months as the government measures to stabilise the slowdown will take effect. According to Mr Chen, with these measures 2012’s full-year economic growth should be maintained at above eight per cent.

Chinese policy-makers are taking measures towards the country’s stabilisation as Europe’s sovereign debt crisis has significantly affected China’s exports and foreign investment. Efforts to boost the country’s growth include the continued reduction in the reserve requirement ratio, acceleration of the approval of investment projects, introduction of a home appliance subsidy policy, and the first reduction of the benchmark interest rate in more than three years to stimulate lending.

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Looking into China’s performance in the first quarter of the year economists estimate that the country’s growth declined to 8.1 per cent from a year earlier. Bank of America Corp. says the decline may even reach between 7 and 7.5 per cent in the next three months. Credit Suisse Group AG has lowered China’s growth forecast for this year to 7.7 per cent, while Deutsche Bank AG reduced its estimate to 7.9 per cent. These predictions compare with a 9.2 per cent expansion last year.

!m[](/uploads/story/133/thumbs/pic_1_inline.png)Meanwhile, China’s ambitious effort to make the Yuan the next global currency may be slowed down by the country’s fragile financial market, the lack of an independent monetary policy and the unstable economy, a report edited by Mr Chen warned. “In the process of Yuan internationalisation, it will be hard to gain the confidence of the international community in the value of the Yuan if monetary policy lacks sufficient independence,” the report states. A more transparent and open system where the Chinese currency is valued against other currencies would prove that the Yuan is not pegged to a single currency and that fluctuations are a result of many different factors including market demand and supply, Mr Chen further states in his report.

And while economists remain wary, according to Chinese President Hu Jintao, China’s economy has maintained stable growth. “Facing a complex and grave external economic environment, China has taken targeted measures to strengthen and improve macroeconomic regulation, accelerate the shift of the growth model, adjust economic structure and build long-term mechanisms to boost domestic demand,” Mr Hu was quoted by the official press agency Xinhua.

Mr Hu also said that China’s GDP grew by 8.1 per cent while its current account surplus in GDP fell to 1.4 per cent, thus contributing to the global economic recovery and growth. He also stated that China will continue with its monetary and fiscal policies to ensure “steady and robust growth.” Yet Beijing has made clear that it will not repeat another massive fiscal stimulus similar to the 4 trillion Yuan ($629 billion) spending package launched in late 2008, which bolstered growth but left an unwelcome legacy of strong inflationary pressures and a potential property bubble.


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