Saturday, April 24, 2010 - 16:45
PBOC's Zhou: China 'Deep-seated' Problems Yet To Be Resolved
By Brai Odion-Esene
WASHINGTON (MNI) - Zhou Xiaochuan, Governor of the Peoples Bank of China, Saturday said that the Asian giant still has a number of "deep-seated" problems that it has yet to fundamentally resolve but promised that efforts to change is economic development model will be accelerated.
The Chinese economy is expected to continue a stable and relatively rapid growth in 2010, but it also faces complex challenges, Zhou said in statement to the International Monetary and Finance Committee.
"Deep-seated problems have yet to be fundamentally resolved -- the urgency of upgrading the economic development model and economic structural adjustments is greater," he noted, adding that guarding against financial risk "remains a tough job."
China, Zhou assured, will maintain the continuity and stability of macroeconomic policy, and make more targeted and flexible policies to respond to new developments.
"In particular, we will properly balance the need for maintaining steady and relatively rapid growth in the economy, adjusting economic structures, and managing inflationary expectations," the PBOC governor said.
A proactive fiscal policy and a relatively easy monetary policy will continue to be implemented, he added, and the Chinese government will continuously improve the policy package to respond to the international financial crisis to maintain good momentum of the economic recovery.
The U.S., together with many other European nations, has consistently called on China to boost domestic demand in order to address global imbalances.
Zhou said China will accelerate the transformation of its economic development model, optimize the structure of the economy, and aggressively expand domestic consumption demand. It will also focus efforts on improving the investment structure and facilitating sustainable growth driven by endogenous forces such as innovation.
"We will use a variety of monetary and fiscal policy tools, pay close attention to price trends, and manage inflationary expectations, effectively minimizing potential systemic risks," he said.
Shifting focus to conditions globally, Zhou warned that the foundation for sustainable recovery remains unstable.
"While some functions of the financial system have gradually resumed," he said, "global financial stability remains comparatively weak. The outlook for the global economy faces many uncertainties."
Not surprising in light of recent Greek news, Zhou noted that the primary risks to the global economy come from developed countries, with sovereign debt risk a major and real threat to global financial stability and economic recovery.
"Its potential systemic effects deserve a high degree of attention and concern," Zhou said.
In addition, he said the financial systems of developed countries have yet to resume their normal functions, warning the prolonged deleveraging process in the banking sector could result in a lack of financing support for sustainable recovery, increasing the complexity and difficulty of exit strategies.
The risk of a resurgence of trade and financial protectionism must also not be overlooked, Zhou added.
He called on developed countries with slow economic recoveries to restore fiscal discipline and contain sovereign risk to avoid cross-border contagion, accelerate financial reform to restore the normal functions of the financial system as quickly as possible, and speed up structural reforms of the products, services, and the labor market to increase the potential for economic growth.
With regards to monetary policy exit, Zhou said central banks should consider not only inflationary pressures, "but also the spillover effects and potential systemic risks brought about by excessive liquidity in the financial system."
Communications with other countries and markets regarding monetary policy intent and the tools that could possibly be used should be strengthened, Zhou concluded.
PBOC's Zhou: China 'Deep-seated' Problems Yet To Be Resolved
By Brai Odion-Esene
WASHINGTON (MNI) - Zhou Xiaochuan, Governor of the Peoples Bank of China, Saturday said that the Asian giant still has a number of "deep-seated" problems that it has yet to fundamentally resolve but promised that efforts to change is economic development model will be accelerated.
The Chinese economy is expected to continue a stable and relatively rapid growth in 2010, but it also faces complex challenges, Zhou said in statement to the International Monetary and Finance Committee.
"Deep-seated problems have yet to be fundamentally resolved -- the urgency of upgrading the economic development model and economic structural adjustments is greater," he noted, adding that guarding against financial risk "remains a tough job."
China, Zhou assured, will maintain the continuity and stability of macroeconomic policy, and make more targeted and flexible policies to respond to new developments.
"In particular, we will properly balance the need for maintaining steady and relatively rapid growth in the economy, adjusting economic structures, and managing inflationary expectations," the PBOC governor said.
A proactive fiscal policy and a relatively easy monetary policy will continue to be implemented, he added, and the Chinese government will continuously improve the policy package to respond to the international financial crisis to maintain good momentum of the economic recovery.
The U.S., together with many other European nations, has consistently called on China to boost domestic demand in order to address global imbalances.
Zhou said China will accelerate the transformation of its economic development model, optimize the structure of the economy, and aggressively expand domestic consumption demand. It will also focus efforts on improving the investment structure and facilitating sustainable growth driven by endogenous forces such as innovation.
"We will use a variety of monetary and fiscal policy tools, pay close attention to price trends, and manage inflationary expectations, effectively minimizing potential systemic risks," he said.
Shifting focus to conditions globally, Zhou warned that the foundation for sustainable recovery remains unstable.
"While some functions of the financial system have gradually resumed," he said, "global financial stability remains comparatively weak. The outlook for the global economy faces many uncertainties."
Not surprising in light of recent Greek news, Zhou noted that the primary risks to the global economy come from developed countries, with sovereign debt risk a major and real threat to global financial stability and economic recovery.
"Its potential systemic effects deserve a high degree of attention and concern," Zhou said.
In addition, he said the financial systems of developed countries have yet to resume their normal functions, warning the prolonged deleveraging process in the banking sector could result in a lack of financing support for sustainable recovery, increasing the complexity and difficulty of exit strategies.
The risk of a resurgence of trade and financial protectionism must also not be overlooked, Zhou added.
He called on developed countries with slow economic recoveries to restore fiscal discipline and contain sovereign risk to avoid cross-border contagion, accelerate financial reform to restore the normal functions of the financial system as quickly as possible, and speed up structural reforms of the products, services, and the labor market to increase the potential for economic growth.
With regards to monetary policy exit, Zhou said central banks should consider not only inflationary pressures, "but also the spillover effects and potential systemic risks brought about by excessive liquidity in the financial system."
Communications with other countries and markets regarding monetary policy intent and the tools that could possibly be used should be strengthened, Zhou concluded.