China growth 'in proper range'

 Chinese Premier Li Keqiang
Chinese Premier Li Keqiang

Prospects good, Premier Li says, downplaying currency fears

•DALIAN (China) • Chinese Premier Li Keqiang  wants to avoid a currency war as he seeks to soothe global concern about the nation's devaluation of the yuan and its slowing economy, which he said is operating in a reasonable range even as it faces downward pressure.

He also said that prospects for China's economy are positive and reiterated the government's vows to push ahead with reforms and support the economy.

China is being unfairly criticised for its currency management and does not want to use yuan depreciation to boost exports, Mr Li said at the World Economic Forum's "Summer Davos" meeting here yesterday.

He said the yuan will be kept at a reasonable, equilibrium level, and that competitive devaluations would not benefit the country.

Mr Li said the yuan's continuous devaluation would be bad for its internationalisation, which policymakers are pushing to become a new reserve currency like the US dollar, yen, euro and British pound.

  • Fed urged to delay rate rise

  • WASHINGTON • The United States Federal Reserve should hold off on raising interest rates until the global economy is more stable, the World Bank's chief economist said in an interview with the Financial Times.

    "I don't think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence," Mr Kaushik Basu was quoted as saying.

    "The world economy is looking so troubled that if the US goes in for a very quick move in the middle of this, I feel it is going to affect countries quite badly," he said.

    The Fed is bracing for an intense debate at its Sept 16-17 policy meeting over when to raise rates, which are hovering near zero since 2006, and how to balance evidence of a resilient US economy against volatility in world markets driven by China slowdown fears.

    The US central bank has been sending mixed signals about the prospect of an increase next week, after data emerging from the country showed the economy has strengthened.

    Fed chairman Janet Yellen has repeatedly signalled that she expects to raise rates this year. She has only three meetings of the Federal Open Market Committee left this year if that expectation is to be fulfilled.

The central bank's buying of yuan and selling of dollars to defend against a rapid depreciation cut foreign- exchange reserves by a record US$93.9 billion (S$133.3 billion) last month.

"The People's Bank of China has been intervening in the hope of convincing global markets that the renminbi will not weaken," said Mr Mark Williams, chief Asia economist at Capital Economics in London.

"China probably feels it deserves some credit for the stability of its currency against the dollar at a time of a lot of nervousness in global financial markets."

But, Mr Li's plan to keep growth about 7 per cent this year is at risk after a stock market rout and sluggish global demand. Exports dropped 5.5 per cent last month from a year earlier and the nation's official factory gauge fell to a three-year low.

A plunge of 40 per cent in China's stock market since mid-June sent shockwaves across the world, fuelling worries among some investors that a hard landing lay ahead for the Chinese economy.

Mr Li said recent government policies had gained traction and China would maintain basic policy direction but would prepare to make pre-emptive adjustments.

Growth is stabilising and employment data shows that the world's second-largest economy is operating in a reasonable range, he said. As long as there is sufficient employment, incomes growing in tandem with economic output and an improving environment, China can accept such growth as it had in the first half of the year, he explained.

Policymakers also had soothing words for investors against a backdrop of sharp gyrations in the country's equity markets.

Those efforts appear to have finally brought markets some respite over the past two days. The CSI 300 index of the biggest stocks listed in Shanghai and Shenzhen closed up 1.96 per cent yesterday, while the Shanghai Composite Index was 2.32 per cent higher.

The positive sentiment fed into major markets around the world. Japan's Nikkei index posted its biggest single-day rally since Oct 30, 2008, while the benchmark Straits Times Index jumped 42.86 points, or 1.49 per cent, to 2,928.18. European shares also soared, with the pan-European FTSEurofirst 300 Index up more than 2 per cent.

The creation of more than seven million new urban jobs and an unemployment rate that held at 5.1 per cent in the first half of this year showed China's economy was on a "reasonable track", Mr Li said. "We won't be swayed by short-term economic fluctuations in our big picture direction," he said.


A version of this article appeared in the print edition of The Straits Times on September 10, 2015, with the headline 'China growth 'in proper range''. Print Edition | Subscribe