World Economy

China Pledges Stability for ‘Complex’ Year Ahead

The People’s Bank of ChinaThe People’s Bank of China

China’s economy is on a steady growth path as 2016 ends, supported by a housing boom and billions in government investment, but the mood of policymakers is more cautious than celebratory as they face “complexity” in the new year.

Controlling risks has been a constant refrain in recent months as the focus of policymakers switches to taming asset bubbles and checking unbalanced growth stemming from efforts to fuel the economy with credit, Reuters reported.

The central bank—while reaffirming a long-standing commitment to prudent policy—said on Friday it would pay more attention to maintaining a “neutral” stance and ensure that it is “neither too tight nor too loose”.

“At present, China’s economic and financial operations are generally stable, but the complexity of the situation cannot be underestimated,” the People’s Bank of China said.

Bank lending is on pace to top 2015’s record 11.71 trillion yuan ($1.7 trillion), helping to stoke a housing boom that saw prices rise a historic 12.6% year-on-year in November, while fixed asset investment by state firms is growing more than 20%.

But growth has become more imbalanced this year as the effectiveness of new credit declines and companies and individuals face mounting debts, economists say.

Policy insiders expect monetary policy to tilt toward slight tightening in 2017 as the government tries to strike a balance between supporting the economy with ample credit and preventing a destabilizing build-up in debt.

Central bank adviser Sheng Songcheng told Reuters in an interview on Thursday that interest rates in China were already on an upward trend as the economy improved.

The PBOC said in Friday’s report it would push reforms of the yuan regime, while keeping the currency basically stable. The central bank used the same wording about the currency in last year’s report.

The yuan ended 2016 with its biggest annual loss since 1994, putting it on track to be the worst-performing major Asian currency this year.

Expectations for a weaker yuan have contributed to significant capital outflows as China’s foreign currency reserves fall to the lowest level in more than five years.

As Chinese firms step up overseas investment, which also contributes to capital outflows, policymakers announced plans this week to further open China’s markets to foreign investment.

Any further opening up to foreign firms should help redress an imbalance in investment flows which is likely to rise to an unprecedented $48.2 billion this year as outbound investment rose more than 55% in the first 11 months of 2016.

Add new comment

Read our comment policy before posting your viewpoints