Central bank promises flexibility to aid growth

By Li Yanping  |   2008-11-18  |     NEWSPAPER EDITION

CHINA may take "preemptive" measures to revive growth as the financial crisis increasingly takes its toll on the economy, the central bank said yesterday.

The People's Bank of China will be flexible and has "ample room" for policy changes, it said in a quarterly monetary policy report posted on its Website. It will ensure money-supply liquidity, the bank said.

"The global financial markets are in severe turbulence, world economies are seriously shocked and the negative impact on China is emerging and intensifying," the bank said. The impact on China "shouldn't be underestimated."

China's economy grew at its slowest pace in five years in the third quarter, Bloomberg News reported, and its October industrial production and trade figures suggested the slowdown was deepening. The government unveiled a huge stimulus package on November 9, and shifted to a "moderately loose" monetary policy.

"As capital inflows decrease amid the financial crisis, the central bank is worried about liquidity in the financial system," Xing Zi qiang, an economist at China International Capital Corp, said in Beijing. The central bank may cut reserve ratios for banks by the end of this year and also trim lending rates further, he said.

China's central bank has cut interest rates three times since September and removed controls on bank lending to support small businesses and fund the building of railways, airports and roads.

China has "various contingency plans," the bank said, adding that it will ensure sufficient liquidity in the financial markets by reducing open-market operations and increasing fund supply.

The government may take more measures to boost domestic consumption, expand fixed-asset investment, and increase spending, the central bank said.

The weakening prop°?erty markets may drag down growth. Falling stocks are trimming households' income, adding to the risks to China's growth just as the world slowdown slashes exports, the central bank said.