Mon, Aug 03, 2015 - Page 14 News List

PBOC official sees downturn as trend

HIGH RISK:The official said local government debt in China is dangerously high, and that the government’s bond-swap program might not cover maturing debt

Reuters, BEIJING

Downward pressure on the Chinese economy is set to persist in the second half as growth in infrastructure spending and exports is unlikely to pick up, a senior central bank official was quoted as saying.

Chinese companies are not optimistic about business prospects according to the central bank’s second-quarter survey, People’s Bank of China (PBOC) statistics division director Sheng Songcheng (盛松成) was quoted as saying by the National Business Daily on Saturday.

Pressured by uneven domestic and export demand, cooling investment and factory overcapacity, China’s economic growth is expected to slow to about 7 percent this year — the lowest in 25 years — from 7.4 percent last year.

A plunge in the country’s share markets since mid-June has added to worries about the economy and reinforced expectations that policymakers are set to roll out more support measures in coming months to avert a sharper slowdown.

The PBOC has already cut interest rates four times since November last year and repeatedly loosened restrictions on bank lending in its most aggressive stimulus campaign since the worldwide economic downturn of 2008.

Sheng said local government debt is at a risky level, saying that 2 trillion yuan ($322.09 billion) in bond swaps might not be able to fully cover maturing debt, according to the report.

Sheng said the PBOC needs to step up the monitoring of local government financing vehicles given the current downturn in China’s property market and limited local government revenues.

Sheng also said he expected second-quarter net profit growth for banks to fall, adding that banks’ exposure to risk “has become clearer.”

However, he said the real-estate market could rebound in the second half and provide support for the economy.

Sheng said he still expects economic growth this year of about 7 percent, an inflation target of about 1.5 percent and growth of M2 — a broad-based measure of money supply — of about 12 percent.

Economists at the central bank in June said they expected growth to pick up modestly in the next six months as previous policy easing measures start to take effect and the housing market stabilizes.

However, other analysts said that view is unduly optimistic, pointing to huge inventories of unsold homes and high local government debt which is curbing their ability to spend on infrastructure projects.

Growth at China’s manufacturing companies unexpectedly stalled last month as demand at home and abroad weakened, an official survey showed on Saturday.

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