Tags: China | Yuan | Banking | Zhou

China Downplays Yuan, Banking Risk; Zhou Sees Solid Growth

Sunday, 23 February 2014 03:41 PM

China’s Finance Minister Lou Jiwei played down yuan declines and the risks from shadow banking as central bank Governor Zhou Xiaochuan signaled that the nation’s economy can sustain growth of between 7 percent and 8 percent.

China’s expansion prospects are suitable for the nation and can boost global economic growth, Zhou said. The country’s services industry has overtaken manufacturing while its contribution to global growth is about 30 percent, Lou said in a statement posted on the People’s Bank of China website. Possible defaults in some wealth-management products don’t reflect a “big problem” and recent yuan weakness is within the normal range, the finance minister told Bloomberg News.

China is stressing the resilience of its economy even as efforts to rein in leverage and expand the role of markets has prompted analysts to forecast the slowest pace of expansion since 1990. Group of 20 policy makers meeting in Sydney pledged a coordinated push to boost growth by more than $2 trillion over the next five years. The G-20 communique singled out China among emerging nations exhibiting “continued solid growth,” changing the language from a draft seen by Bloomberg News that hadn’t named the world’s second-largest economy.

“There will be ups and downs,” Lou said Saturday of recent declines in the yuan. The currency’s movement is “within normal range” and doesn’t indicate a change in economic fundamentals, he said.

PBOC Governor Zhou earlier expressed confidence in his nation’s growth prospects even as a slowdown in manufacturing sent Chinese stocks tumbling by the most in six weeks on Friday and the yuan had its biggest weekly slide against the dollar since 2011. New credit in China rose to a record in January, underscoring the risk of financial turbulence from defaults and bad loans, and the increasing amount of financing required to generate gross domestic product.

Shadow Banking

Shadow banking in China is more closely linked to the real economy than it is in western countries, Lou told Bloomberg News Saturday. The scale of the sector is not large in general, but it has grown fast recently and the PBOC is dealing with it cautiously, according to a statement Saturday posted on the central bank’s website.

The offshore yuan fell 1 percent to 6.0933 per dollar last week, a decline unseen since September 2011. The Shanghai Composite Index tumbled 1.2 percent on Friday, the steepest retreat since Jan. 6.

There’s “no big problem” for China to maintain steady and healthy growth, Zhou told Bloomberg News Friday. “Uncertainty is always present and there’s nothing big to worry about.”

G-20 policy makers Saturday said they will aim to lift collective gross domestic product by more than 2 percent above the trajectory implied by current policies. Global growth will accelerate to 2.9 percent in 2014, the quickest pace in three years, according to the median of forecasts compiled by Bloomberg. It will be 3.1 percent the following year.

Boost Investment

While the U.S.’s 2.9 percent predicted expansion is the fastest after New Zealand among Group of 10 currency nations, China’s GDP will increase at more than twice that pace at 7.5 percent, slowing from 7.7 percent in 2013, the data show.

China’s economy will this year maintain the same trend of steady growth as it did last year, Lou said Saturday. Developed countries are too optimistic about their own growth, he said.

The Asian nation will try to boost investment and consumption demands by pushing ahead with urbanization, he said in a statement Saturday. The services industry has now overtaken manufacturing, which once accounted for nearly 60 percent of GDP, he said.

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China's Finance Minister Lou Jiwei played down yuan declines and the risks from shadow banking as central bank Governor Zhou Xiaochuan signaled that the nation's economy can sustain growth of between 7 percent and 8 percent.
Sunday, 23 February 2014 03:41 PM
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