Chief banking regulator says GDP growth must not go below 8pc
Martin Zhou and Cary Huang in Beijing 14 December 2008
The mainland’s top economic-policy makers warned yesterday that the global financial crisis is hitting the economy faster and harder than Beijing had anticipated, with the threat of deflation looming large.
The country’s top banking regulator told a high-level financial conference the mainland was aiming for gross domestic product growth of about 8 per cent next year to maintain sufficient employment for social stability.
“If China’s GDP growth rate falls to 6 or 7 per cent, the quality of the economy would be seriously impacted,” China Banking Regulatory Commission chairman Liu Mingkang said at an annual financial forum sponsored by the influential business magazine Caijing. “We take the 8 per cent [growth rate] as our bottom line.”
An annual economic strategy meeting attended by top party leaders last week agreed that the mainland had to maintain “relatively fast and stable growth” next year through a “moderately loose” monetary policy and “proactive” fiscal policy to combat possible recession. But no growth target has been unveiled.
In previous years, the mainland has declared a GDP growth target of 8 per cent, only to overshoot into the double digits, but many economists think growth will be on shakier ground next year.
Central bank governor Zhou Xiaochuan told the forum last night that since the collapse of US investment bank Lehman Brothers in mid-September, the mainland had felt the pinch of the global downturn at a “faster and deeper” pace.
“The impact is deeper and it came much earlier than we anticipated,” Mr. Zhou said.
Beijing released economic data for November last week that pointed to a further deterioration in the mainland economy. Exports shrank for the first time in seven years and the inflow of foreign direct investment slowed dramatically.
With both consumer and producer price rises slowing sharply last month, the mainland economy was “very likely to slide into deflation mode”, Mr. Liu said.
“I expect the producer inflation to continue tumbling in a dramatic fashion in December,” he said. “The possibility of moving to deflation from inflation has greatly increased.”
Not long ago, the central government was focused on reining in inflation and even last month senior government officials dismissed concerns about deflation despite the sharp economic slowdown.
The mainland has been recording double-digit GDP growth for most of the past decade and the economy grew 11.9 per cent last year. Last week, Goldman Sachs cut its forecast for mainland GDP growth next year to just 6 per cent.
Mr. Liu said: “China’s economic and financial situation merits no optimism and Chinese banks will face stern challenges in 2009.”
With difficulties mounting in the financial sector, Mr. Liu said the mainland would not ask its banks to reduce their stockpiles of bad loans next year, though it would still expect them to lower their overall non-performing-loan ratios.
That suggests banks will increase lending and hope those loans will not go bad.
Mr. Liu said this marked a shift from previous years, when the banking regulator had called on lenders to cut both. He also said the mainland might start seeing capital outflows after years of huge inflows.
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Deflation Alert as Global Crisis Hits Mainland
Chief banking regulator says GDP growth must not go below 8pc
Martin Zhou and Cary Huang in Beijing
14 December 2008
The mainland’s top economic-policy makers warned yesterday that the global financial crisis is hitting the economy faster and harder than Beijing had anticipated, with the threat of deflation looming large.
The country’s top banking regulator told a high-level financial conference the mainland was aiming for gross domestic product growth of about 8 per cent next year to maintain sufficient employment for social stability.
“If China’s GDP growth rate falls to 6 or 7 per cent, the quality of the economy would be seriously impacted,” China Banking Regulatory Commission chairman Liu Mingkang said at an annual financial forum sponsored by the influential business magazine Caijing. “We take the 8 per cent [growth rate] as our bottom line.”
An annual economic strategy meeting attended by top party leaders last week agreed that the mainland had to maintain “relatively fast and stable growth” next year through a “moderately loose” monetary policy and “proactive” fiscal policy to combat possible recession. But no growth target has been unveiled.
In previous years, the mainland has declared a GDP growth target of 8 per cent, only to overshoot into the double digits, but many economists think growth will be on shakier ground next year.
Central bank governor Zhou Xiaochuan told the forum last night that since the collapse of US investment bank Lehman Brothers in mid-September, the mainland had felt the pinch of the global downturn at a “faster and deeper” pace.
“The impact is deeper and it came much earlier than we anticipated,” Mr. Zhou said.
Beijing released economic data for November last week that pointed to a further deterioration in the mainland economy. Exports shrank for the first time in seven years and the inflow of foreign direct investment slowed dramatically.
With both consumer and producer price rises slowing sharply last month, the mainland economy was “very likely to slide into deflation mode”, Mr. Liu said.
“I expect the producer inflation to continue tumbling in a dramatic fashion in December,” he said. “The possibility of moving to deflation from inflation has greatly increased.”
Not long ago, the central government was focused on reining in inflation and even last month senior government officials dismissed concerns about deflation despite the sharp economic slowdown.
The mainland has been recording double-digit GDP growth for most of the past decade and the economy grew 11.9 per cent last year. Last week, Goldman Sachs cut its forecast for mainland GDP growth next year to just 6 per cent.
Mr. Liu said: “China’s economic and financial situation merits no optimism and Chinese banks will face stern challenges in 2009.”
With difficulties mounting in the financial sector, Mr. Liu said the mainland would not ask its banks to reduce their stockpiles of bad loans next year, though it would still expect them to lower their overall non-performing-loan ratios.
That suggests banks will increase lending and hope those loans will not go bad.
Mr. Liu said this marked a shift from previous years, when the banking regulator had called on lenders to cut both. He also said the mainland might start seeing capital outflows after years of huge inflows.
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