China growth reduces stimulus urgency

April 18, 2016 09:17 AM

Bottoming out?

China's economic slowdown in recent years has caused jitters in world markets at a time when the government wants to reduce a reliance on industry in favor of services and consumers.

Leaders have sounded more positive about the economy in recent weeks. On April 8, Premier Li Keqiang said China's economic indicators had shown signs of improvement in the first quarter, although such improvement was not solid yet due to a sluggish world economy and market volatility.

"The overall situation is better than expected," Li was quoted by state media as saying.

Some market economists agree. After March inflation data, ANZ Bank scaled back its expectations for monetary policy easing this year to one more RRR cut this year, instead of three.

On Friday, UBS upgraded its 2016 economic growth forecast to 6.6% from 6.2%, and said it no longer expected an interest rate cut this year. But the investment bank said there were concerns about the sustainability of growth and about debt.

Indeed, there was a surge of new debt at the start of 2016 which could have helped the economy gain strength in March. Yuan loans rose 25% over a year earlier.

Rising debt levels in China are a concern though. In a report last week, the International Monetary Fund flagged the risks of commercial bank loans to the corporate sector, saying 15.5% of them, or $1.3 trillion, were now held by borrowers without sufficient income to cover interest payments.

Continued strong lending to a weakening corporate sector would sap potential economic growth because the loans would only refinance existing debt rather than new projects, the IMF said.

"China is climbing a ridge in its restructuring, the restructuring pain continues, the real economy has more difficulties and the downward pressure can not be ignored," Sheng Laiyun, spokesman of the National Bureau of Statistics, said on Friday.

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