After a solid first quarter, pointing to a slow down in capital outflows and a stable yuan after a selloff last year stoked fears of instability, policymakers in China are pushing a bullish message on the world’s second-biggest economy.
China’s finance minister Xiao Jie said an increasing number of positive signs were seen in the Chinese economy in the first quarter gross domestic product report while speaking at a G20 summit meeting of the world’s top economies in Washington last week.
Xiao said in a notice published on the Ministry of Finance’s website on Saturday that China is confident of reaching the government’s 6.5 percent GDP growth target this year.
With signs that capital is starting to return to China, the improving economy has been matched by a stable yuan, People’s Bank of China (PBOC) adviser Sheng Songcheng said separately.
“After breaking and even reversing expectations for yuan depreciation, there are signs of a trend of capital returning to China,” Sheng wrote in Monday’s editorial in Financial News, a newspaper owned by the PBOC.
To temper rampant credit growth and put the economy on an even keel, Beijing’s shift to a tighter policy stance was underscored by as Sheng reiterated that interest rates are on an uptrend.
Boosted by higher government infrastructure spending and a gravity-defying property boom, China’s economy grew a faster-than-expected 6.9 percent in the first quarter, showed last week’s data and the comments from Sheng and Xiao followed those good data.
The spokeswoman for the foreign exchange regulator said on Thursday that as expectations for further yuan depreciation have weakened significantly, cross border flows were more balanced and capital outflows from China eased sharply in the first quarter.
Thanks largely to a pullback in the surging U.S. dollar, and as officials indicate increasing confidence that pressure on the yuan and the country’s foreign exchange reserves has diminished, China has relaxed some curbs on capital flows, reported the media quoting sources last week.
But it is unlikely Beijing will start a broad roll-back of capital control measures in the near future and it is too early to say China has won the war against capital outflows, some economists say.
“We expect the CNY (or yuan) to come under pressure again at some point, notably at times of another global strengthening of the US$,” Oxford Economics economist Louis Kuijs said in a note Friday.
“We still do not rule out further tightening if the pressures on the FX market were to rise substantially again.”
A risk to financial stability in China is a massive build-up of debt over the past several years, had been highlighted by policymakers, economists and the International Monetary Fund.
as a way of reducing excess industrial capacity and cutting its reliance on debt-driven growth policies, China has bene promoting supply-side structural reforms and the country is making progress on that front, Xiao said in his Washington speech.
(Adapted from Reuters)