Beijing finds agreement with IMF about risks from China slowdown

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(Oct 13): Central bankers and International Monetary Fund officials agree with Beijing: a slowdown in the world’s second-largest economy is considered healthy and there’s no need for further monetary easing.

People’s Bank of China Governor Zhou Xiaochuan reiterated the need for “prudent” monetary policy amid steady economic growth and “mild” inflation in an Oct. 11 report to the IMF in Washington. His statement comes before government reports of September inflation and credit this week; August data showed the weakest industrial-output expansion since the global financial crisis and a 40 percent drop in broadest measure of new credit from a year earlier.

The slowing momentum in the Chinese economy is being seen as positive rather than alarming. Moderating growth will make it more sustainable, which will benefit both China and Asia, Malaysia’s Central Bank Governor Zeti Akhtar Aziz said in an interview with Bloomberg News on the weekend. The balance between expansion and structural reforms that China is seeking is right so far, Markus Rodlauer, deputy director of IMF’s Asia Pacific Department, said at an Oct. 10 briefing.

“China’s slowdown is a healthy correction, in many ways an engineered slowdown,” Jorge Mariscal, Chief Investment Officer for Emerging Markets at UBS AG, said in an interview in Washington on the weekend. “So far, this rate of decline of the economy isn’t so concerning to justify a very aggressive stimulus program, whether fiscal or monetary.”

Chinese policy makers are focusing on employment even as industrial production to property investment are slowing. Premier Li Keqiang said last week that China has already achieved its employment target for 2014. “Stamina and perseverance” are as important as speed in the economic policy mix, underlining why China has avoided stimulus measures including using monetary policy to help meet its growth target, he said.

Slowing Growth

Li said China still expects economic growth of about 7.5 percent this year in a weekend speech in Germany. The median forecast in a Bloomberg survey of economists from Sept. 18 to Sept. 23 is 7.3 percent this year. That would be the slowest pace since 1990.

The government won’t need to do “big stimulus” as the job market looks “pretty stable,” according to PBOC’s chief economist Ma Jun.

“We need to avoid further increase in leveraging in some sectors, for example, real estate, some state-owned enterprises and local government financing vehicles,” Ma said on a panel at the Institute of International Finance annual meeting in Washington Oct. 11.

While the PBOC injected 500 billion yuan ($81 billion) of liquidity into the nation’s five largest commercial lenders last month, and eased mortgage policies to aid the housing market, it has refrained from a broader interest-rate cut. The benchmark one-year lending rate has been 6 percent since July 2012.