China's central bank says policy makers still have room to support economy

People's Bank of China Governor Zhou Xiaochuan.
People's Bank of China Governor Zhou Xiaochuan. PHOTO: REUTERS

SHANGHAI (REUTERS) -  Chinese policymakers told global financial leaders on Friday (Feb 26) that the world’s second-largest economy remains on a sound footing, while also seeking to manage expectations around the pace of economic reforms in the country.

Speaking at the Group of 20 nations (G-20) meeting of central bank governors and finance ministers in Shanghai, central bank governor Zhou Xiaochuan sent a message of confidence and repeated earlier reassurances that the country would not stage another devaluation of its currency to support the economy.

The latest economic data shows positive signs for China’s growth prospects this year, and the People’s Bank of China (PBOC) still has room and tools in its monetary policy to deal with potential downside risks to its economy, Mr Zhou told a conference held by the Institute of International Finance in conjunction with the G-20 meeting.

At the same time, policy makers need to strike a balance between growth, restructuring and managing risks to the economy.

“While the reform direction is clear, managing the reform pace will need windows (of opportunity) and conditions...The pace will vary, but the reform will be set to continue and the direction is not changed,” Mr Zhou said in English.

“OVERWHELMING” REFORM AGENDA

Global financial policymakers gathered in Shanghai are watching closely for signs that China is ready to tackle economic imbalances they see standing in the way of getting China’s economy onto more sustainable footing.

Speaking at the opening of the G-20 meeting, International Monetary Fund (IMF) chief Christine Lagarde said China faces an“overwhelming” agenda of structural reforms, reinforcing the large task ahead as its leaders seek to open up the financial sector and move the economy away from debt-fuelled investment.

Chinese Finance Minister Lou Jiwei also called for G-20 countries to work together more on economic policy and to further reduce barriers to cross-border trade and business.

The world’s financial leaders meeting in Shanghai will discuss ways to calm global markets and spur economic growth, and are likely to declare their readiness to take action if conditions worsen.

China’s central bank reiterated assurances made on Thursday that it will not use currency depreciation to boost exports, and that it intends to keep the yuan basically stable against a basket of currencies.

The statement followed an admonition from US Treasury Secretary Jack Lew in an interview with the Wall Street Journal to refrain from another sharp devaluation to the exchange rate like the one engineered in August.

Mr Lew also called on China to communicate its policy intentions “clearly publicly or it will be interpreted for you”.

LITTLE ROOM FOR MANOEUVRE

Mr Zhou said he was not worried about China’s external payments situations despite recent falls in its foreign exchange reserves, and that fluctuations in the reserves are normal. He added that China’s fiscal policy would be more proactive.

However, beyond the focus on China, German Finance Minister Wolfgang Schaeuble struck a more pessimistic tone, saying room for monetary and fiscal policy in Europe has been exhausted.

Speaking at the conference, Mr Schaeuble stressed it was necessary to continue with financial regulation, implement structural reforms, and to make markets less volatile.

Bank of England Governor Mark Carney is also scheduled to speak on Friday.

A report published by the International Monetary Fund (IMF) on Wednesday called for a coordinated stimulus programme to support a slowing global economy.

An official with a European delegation to the G-20 earlier in the week said policymakers recognise elevated risks and will express the need for coordinated action in their joint communique at the summit.

“There is general agreement that should the situation worsen considerably, there needs to be a discussion on what should we do collectively or in a coordinated manner, but this is not what we would do today,” the official said.

G-20 financial leaders are likely to push for better implementation of the already agreed reforms and an assessment of where implementation is lacking and why.