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Economy

Premier offers reassurance on growth, yuan

1
2015-08-31 08:56Global Times Editor: Li Yan

China's economy is still operating within an appropriate range and there is no basis for a continued depreciation of the yuan, Premier Li Keqiang said Friday, sending a positive signal that should help to restore investor confidence, analysts said Sunday.

Li was speaking at a State Council meeting on economic conditions held Friday after the release of worse-than-expected economic indicators for July and turmoil in the global stock and commodity markets seen in the past few weeks.

The recent fluctuations in the international markets have added new uncertainties to the global economic recovery, Li noted, and have had a deep impact on China's financial markets as well as its imports and exports.

Li said that China will continue to implement a proactive fiscal policy and prudent monetary policy, as well as adopting more precisely targeted macro-control measures to hedge against downward pressure, with the aim of achieving major economic targets set for this year.

"China still leads the world in terms of economic growth," he said. "The country is also capable of effectively managing risks."

Analysts said Li's remarks have sent a positive signal to the market amid the recent pessimism about the outlook for the Chinese economy.

This was the second high-level meeting to discuss the current economic situation following a meeting of the Political Bureau of the Communist Party of China Central Committee on July 30, highlighting policymakers' determination to stabilize growth, Li Shaojun, an analyst with Minsheng Securities, said in a research note sent to the Global Times Sunday.

Although China's measures to support the economy are expected to start yielding results in the fourth quarter of this year, Premier Li's remarks will send an immediate positive signal to the stock market and help restore investor confidence, Li Shaojun said.

China's stock markets have slumped in the past few months, with the Shanghai benchmark index diving nearly 40 percent since reaching a peak on June 12.

"The development of the domestic economy in the rest of the year will be better than some market expectations," Zhou Jingtong, an analyst with Bank of China, told the Global Times Sunday. The bank estimates that China's GDP growth will stay at 7.0 percent in the third quarter.

Fitch Ratings also said in a report Wednesday that market pessimism about the short-term macroeconomic outlook in China is probably excessive.

The cut in benchmark interest rates and banks' reserve requirement ratio announced on Tuesday highlighted the authorities' policy flexibility in supporting the economy, and the government still has significant room to loosen policy further, the report said.

Xu Hongcai, an economist with the China Center for International Economic Exchanges, forecast that China's GDP growth may fall to 6.8 to 6.9 percent in the third quarter, as the country's exports fell sharply in July and the domestic stock markets have suffered big losses during the period.

"But the GDP growth will rise to 7 percent again in the fourth quarter because of the central bank's latest monetary easing measures," Xu told the Global Times Sunday.

At Friday's meeting, the premier also said that there is no basis for continued depreciation of the yuan, which has weakened by 4.6 percent against the US dollar since China reformed its exchange rate forming mechanism on August 11.

"The yuan will stay basically stable," he said.

Xu also said there are several factors that will support the yuan in the future, including stable domestic economic growth and the country's sound financial condition.

The yuan's depreciation is not the major reason for financial turmoil in neighboring economies, according to a commentary published Friday on the central government's website, citing Shang-Jin Wei, chief economist for the Asian Development Bank.

The financial unrest in Southeast Asian countries since mid-August has mainly been caused by the strengthening of the US dollar and increasing expectations for a US interest rate hike, Wei noted.

  

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