World Economy

ADB Optimistic of China Growth

ADB Optimistic of China GrowthADB Optimistic of China Growth

The Asian Development Bank president said Friday he is optimistic China’s economy will post healthy growth of 6.7% this year despite jitters over the yuan’s depreciation and a plunge in Chinese stocks.

ADB President Takehiko Nakao said that China’s growth “is still very high” compared with other countries. The development bank estimates the Chinese economy grew 6.9% last year, FoxNews reported.

China’s slowdown is due to policies to pay more attention to the environment, an aging population, waning migration from rural areas to cities, higher wages and higher per capita income, currently $8,300, that make it more difficult to maintain the very rapid growth rates of the past, he said.

Trading in Chinese stocks was suspended Thursday after a key index plunged 7%. China’s stock markets have little connection to the rest of its economy, but two sharp price declines this week have focused attention on the slowdown in Chinese growth. The latest plunge in Chinese stocks was set off by concern Beijing is allowing its yuan to weaken too fast against the dollar.

Nakao said he does not see a serious adjustment in the Chinese economy because there is much room to expand service industries, state owned enterprises are being reformed, social security is being boosted and efforts are underway to reduce the income disparity between cities and rural areas.

Fiscal reforms include measures for local authorities suffering from high debt to increase their revenue and a larger role for central government in providing social security.

“There is room for stimulus if growth is coming down because the fiscal position is strong and inflation is subdued,” he said. “For these reasons, I don’t have a very pessimistic view about China.”

But he warned that unless China makes progress in reforms especially on local government finances, it would be difficult to continue relatively high growth.

  Prudent Policy

China’s central bank pledged to continue prudent monetary policies this year while maintaining “reasonable, ample” liquidity in the banking system, Bloomberg reported.

The People’s Bank of China said it would seek to keep the yuan’s exchange rates “basically stable” at reasonable and equilibrium level and work to further promote the internationalization of the currency, the monetary authority said Friday in a statement on its website.

The PBOC also said it would continue to offer credit support to some key areas and lower social-financing costs with multiple tools, including the Pledged Supplemental Lending and Medium-Term Lending facilities.

  Shares Swing

Chinese shares swung wildly on the first day of trade after authorities lifted a “circuit breaker” mechanism, introduced to prevent sharp falls. The central bank has set the yuan higher, after eight days of weakening, DW reported.

The China Securities Regulatory Commission said late Thursday that it was shelving the “circuit breaker,” which it had introduced at the beginning of the year.

“After weighing advantages and disadvantages, currently the negative effect is bigger than the positive one,” the CSRC said in a statement.

The mechanism was meant to calm China’s notoriously unstable markets, which plunged in mid-2015. The “circuit breaker” functions by automatically suspending trading for 15 minutes if shares fell by 5% in one day, and closing them for an entire day if they dropped 5% or more.

Dealers criticized the measure, however, saying that the system heightened selling pressure from traders who wanted to avoid being stuck with shares they did not want to hold.

  Short-Lived Jump

As investor confidence grew on the new measures on Friday, the benchmark Shanghai Composite Index and the Shenzhen Composite Index, which tracks stocks on China’s second exchange, both opened more than 2% higher on Friday.

Minutes later, however, they reversed the gains, with the Shanghai index down 0.68%, or 21.15 points, to 3,103.85, and the Shenzhen indicator dropping 1.80%, or 35.22 points, to 1,922.87.

  Yuan Rate

Also on Friday, the People’s Bank of China raised the yuan’s guidance rate for the first time in nine trading days to 6.56.

The central bank allowed the currency’s biggest fall in five months on Thursday, sending shockwaves through regional currency and global stock markets as investors feared it would trigger competitive devaluations.