Chinese economy on a steady path
Print Edition
CHINA’S economy is on a path of steady growth as 2016 comes to an end, supported by a housing boom and billions in government investment.
But the mood of policy-makers is more cautious than celebratory as they face “complexity” in the new year.
Controlling risks has been a constant refrain in recent months as their focus switches to taming asset bubbles and checking unbalanced growth stemming from efforts to fuel the economy with credit.
The central bank — while reaffirming a long-standing commitment to prudent policy — said yesterday that 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 track to top 2015’s record 11.71 trillion yuan (US$1.7 trillion), helping to stoke a housing boom that saw prices rise a historic 12.6 percent year on year in November, while fixed asset investment by state firms is growing more than 20 percent.
But growth has become more imbalanced as the effectiveness of new credit declines and companies and individuals face mounting debts, according to some economists.
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.
In an interview on Thursday, central bank adviser Sheng Songcheng told reporters that interest rates in China were already on an upward trend as the economy improved.
In financial markets, China’s blue-chip stock index ended the year more than 11 percent lower while the yuan at an 8-1/2 year low.
Primary money rates rose this week and were largely higher this year, driven by the central bank’s tighter liquidity stance in the second half aimed at taming risks.
The key interbank rate rose more than 25 basis points for the year, indicating tighter monetary conditions, after falling sharply in 2015.
Market participants said the falling yuan has had a large negative impact on the money market in the second half.
The bank said it would push reforms of the yuan regime, while keeping the currency basically stable, echoing its remarks last year.
The yuan ended 2016 with its biggest annual loss since 1994.
Expectations for a weaker yuan contributed to significant capital outflows as China’s foreign currency reserves fell to their lowest level in more than five years.
As Chinese firms step up overseas investment, policy-makers this week announced plans to further open China’s markets to foreign investment.
Opening up should help redress an imbalance in investment flows which is likely to rise to 335 billion yuan this year. Outbound investment rose more than 55 percent in the first 11 months.
Yesterday, the National Development and Reform Commission, the state planning agency, said the country would seek to open up, in an “orderly way,” sensitive areas such as telecoms, education and the Internet to foreign investment.
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