China’s slower expansion in the first quarter is “normal” as the world’s second-largest economy sacrifices growth to make structural reforms, People’s Bank of China Governor Zhou Xiaochuan said.
While a “mild” slowdown in the global economy does have an impact on China, the 7.7 percent growth rate in gross domestic product is “overall normal” compared with the government’s 2013 target of 7.5 percent, Zhou told Bloomberg News outside a meeting of the International Monetary Fund in Washington on April 20.
“China’s undergoing economic restructuring, which sometimes is not in lockstep with growth,” he said. “We need to sacrifice short-term growth for the purposes of reforms and structural adjustments.”
The nation’s expansion in the first quarter missed the 8 percent median of economists’ forecasts compiled by Bloomberg and slowed from a rate of 7.9 percent in the previous three months, when Asia’s biggest economy emerged from a seven-quarter slowdown. Premier Li Keqiang said earlier this month more efforts should be made to improve the quality and benefits of economic development, focusing on restructuring and upgrading, as the government seeks to shift away from an export-reliant growth model.
The economy had a stable start in the first quarter and growth was within a reasonable range, Zhou said at the IMF meeting, according to a statement posted to the PBOC’s website Sunday.
Goldman Sachs Group Inc., Royal Bank of Scotland Plc, JPMorgan Chase & Co. and Australia & New Zealand Banking Group Ltd. last week cut their estimates for China’s 2013 expansion to 7.8 percent after the worse-than-forecast performance in the first quarter. That would be the same as 2012’s pace, which was the weakest in 13 years.
The Shanghai Composite Index of domestic Chinese shares sank 1.1 percent on April 15 to the lowest level this year after the GDP data. The gauge rebounded later for its first weekly gain in a month.
The pace of economic growth in the first quarter marked the first time in data going back two decades that four periods in a row have seen expansion of less than 8 percent.
China’s long-term growth rate may be limited by declines in the working-age population, income gains that are pushing up costs and public concern at the environmental toll from polluting factories. Premier Li pledged in March to open the economy to more market forces and strip power from the government as part of efforts to restructure the economy.
State-owned companies and the country’s new wealthy class may stand as barriers to change after benefiting from controls on borrowing and savings rates, underpriced resources and the absence of property taxes.
A sustained shift to a lower-growth gear would affect everything from iron-ore demand in Australia to the fortunes of companies including carmaker General Motors Co., who are counting on China to drive profits. It increases challenges for global policy makers contending with Europe’s debt turmoil and Japan’s record monetary easing, with BHP Billiton Ltd. saying GDP gains will moderate toward 6 percent later this decade.
“Experience of China’s economic growth indicates that pushing forward reform and structural adjustment can inject sustained drivers into the economy, which can not only boost growth potential in the medium and long term but also produce notable effects in promoting growth and job creation in the short term,” the central bank said in a statement on its website on Saturday.
The statement cited views the Chinese delegation expressed to the meeting of central bank governors and finance ministers from the Group of 20 nations in Washington last week. Zhou and Finance Minister Lou Jiwei both took part in the event.
“China’s structural adjustment has scored notable achievements,” according to the PBOC statement. The contribution of service industries to economic growth in the first quarter exceeded that of manufacturing for the first time, it said.
In his statement to the IMF, which was posted on the lender’s website, Zhou reiterated that changes in China’s financial sector will involve “further interest-rate liberalization, capital account convertibility and exchange rate reform.”
PBOC Deputy Governor Yi Gang said April 17 in Washington that the yuan’s trading band will widen “in the near future,” and that China needs to make its capital account fully convertible. The Chinese currency last week rallied the most since October and touched a 19-year high of 6.1723 on April 17.
In an April 18 note, UBS AG said an announcement of a band widening could come during the G-20 meeting. JPMorgan Chase & Co. said a revision is more likely in 2014.
The PBOC announced on April 14, 2012 that it would widen the yuan’s daily trading band against the U.S. dollar to 1 percent from 0.5 percent, the first change since 2007.
Revamping the value-added tax system for businesses is a priority in the nation’s fiscal reforms, Lou said April 18 during meetings in Washington. The government announced earlier this month that new VAT measures will spread to all provinces in the country starting Aug. 1 and will extend to the film, radio and television industries.
While inflation has been “relatively stable,” the government remains on guard due to rising costs for labor and raw materials, pricing reforms and excessive global liquidity, Zhou said in his statement posted on the IMF’s website.
March consumer prices increased 2.1 percent from a year earlier, after rising 3.2 percent in February which was the quickest pace in 10 months.
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