China pledges 'ample liquidity' to sustain economic growth

Central bank to continue 'loose' monetary policy / Chinese economy shows some signs of recovery
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The Independent Online

China's central bank yesterday reaffirmed its commitment to ensuring sufficient liquidity to sustain economic growth, dousing speculation that it may tighten the availability of credit after new loans soared to record highs in March.

The statement from People's Bank of China came as the country's prime minister, Wen Jiabao, said the Chinese economy is showing signs of recovery from the global financial crisis.

The Chinese central bank said it will "implement moderately loose monetary policy and maintain the continuity and stability of policy". It also said it would provide "ample liquidity" to "ensure money supply and loan growth meet economic development needs," on its website yesterday.

The US and UK governments are likely to welcome such measures, if they stimulate appetite for foreign imports into China and help to rebalance the Chinese economy towards domestic demand away from export-led growth. While China's economic output has slowed from the stratospheric growth of 13 cent in 2007, its economy remains a vital engine room of global growth.

Last month, the Organisation for Economic Cooperation and Development, the think tank, forecast the Chinese economy will grow by 6 to 7 per cent this year, which was down from its forecast of 8 per cent in November. The OECD has forecast that Japan's GDP will slump by 6.6 per cent this year, compared with 4 per cent in the US and 3.7 per cent in the UK.

In March, Chinese banks provided a record number of loans as the credit expansion showed no sign of abating. The country's banks provided new local currency-denominated loans of 1.89 trillion yuan last month – the highest for at least 11 years – which brought the total amount for the first quarter to 4.58 trillion yuan.

China's government has set itself a full-year target of 5 trillion yuan. As a result, the annual growth in the country's broad M2 measure of money supply jumped to a record 25.5 per cent in March, sharply up from 20.5 per cent the previous month.

Yesterday, Mr Wen said the economy had demonstrated "better than expected positive changes in the first quarter". Speaking on the fringes of the Asean conference, which was cancelled over the weekend after violent protests in Thailand, Mr Wen said the economy was showing "positive changes", but it still faced "very big difficulties".

China has already provided a 4 trillion yuan stimulus package, in an effort to revive the slowing growth in the economy. Mr Wen said he was prepared to deliver further measures, if required.

China's industrial output grew by 8.3 per cent in March, compared to the same month last year, suggesting that its huge stimulus package is already working. Furthermore, Mr Wen hinted that China may be over the worst of the financial crisis even if the world economy deteriorates further.

"As the crisis has not touched its bottom, we can hardly say that the Chinese economy alone has got out of the crisis," Mr Wen said. Government data showed that the manufacturing sector in China grew in March for the first time in six months. The purchasing managers index from the China Federation of Logistics and Purchasing crept up to 52.4 last month from 49 in February.

However, some economists believe that China, where manufacturing accounts for about 40 per cent of the country's output, will continue to be hit by the falling demand for its products in western and other developed countries. Chinese exports actually fell to $US64.9bn (£44.3bn), a 25.7 per cent drop when compared with the same month last year.

In March, Angel Gurria, the Secretary-General of the OECD, is reported to have warned: "Even positive growth in big emerging economies like India and China is not going to be able to offset negative growth [elsewhere]".

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