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Wednesday, March 25, 2009

China economy ‘has bottomed’, says central bank adviser

HONG KONG, March 25 – reported by malaysianinsider – source : Reuters

China’s economy has touched bottom but further interest rate cuts remain an option, a Chinese central bank adviser said on Wednesday.

Fan Gang, who sits on the Chinese central bank’s monetary policy advisory committee, said a 25 per cent rise in car sales and accelerating investment in China indicated the economy was showing signs of improvement.

“Before (the economy) bottoms out, it has to bottom. I believe it has bottomed, with the stimulus package and signs of recovery in some industries,” Fan said in an interview during the Credit Suisse Asian Investment Conference in Hong Kong.

Steel and energy consumption were declining at a slower rate and may have turned positive in March, while the transportation sector was warming up, he said.

However, high inventories and overcapacity in some industries remained the biggest short-term challenges for the economy, he said.

Further interest rate cuts remained an option.

“I don’t think anybody would rule it out. But it depends on China’s liquidity, how China’s recovery takes place and how the stimulus package works out,” he said.

As exports have collapsed in the face of sharply declining global demand in recent months, high inventories and overcapacity in some industries posed the biggest short-term challenges for the Chinese economy, Fan said.

The Chinese government has targeted 8 per cent growth this year, its lowest growth since 1999, but the World Bank forecasts only a 6.5 per cent expansion.

Fan said China’s sharp economic slowdown meant deflation was an issue in the short term, but he warned that inflopment of a diversified and competitive monetary system would be useful because competition between currencies can create more discipline.”

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