Sep 08, 2015

    Chinese lawmakers try to calm investors


    CHINA'S policymakers and regulators tried to soothe the country's jittery markets yesterday, promising deeper financial market reforms and stressing that the economy was showing signs of stabilising.

    This came after Finance Minister Lou Jiwei's speech at the G20 meeting over the weekend indicating that Beijing would remain proactive with its fiscal policy and increase government spending by 10 per cent this year.

    Beijing's extra spending will widen its fiscal deficit by 270 billion yuan (S$60.5 billion) to more than 1.6 trillion yuan, reported the South China Morning Post.

    Mr Lou told the G20 finance ministers in Turkey that Beijing was unfazed by projections that slower growth would last five years, calling this change a "new normal".

    Growth had been bolstered with 7 million new jobs in the first half of the year, he added, conveying an optimistic picture.

    The Chinese economy is headed for its slowest expansion in 25 years, and concerns have been building that it may miss the official growth forecast of around 7 per cent.

    Meanwhile, the surprise devaluation of the yuan by Beijing last month has left market watchers questioning whether China's efforts to support the currency are sustainable, as capital flows out of the country.

    "Currently, the yuan-to-dollar exchange rate already tends towards stability, the stock market adjustment is already roughly in place and financial markets can be expected to be more stable," China's Central Bank Governor Zhou Xiaochuan told the international gathering.

    Looking to draw a line under wild gyrations in Chinese equity markets, which have fallen 40 per cent since mid-June, the China Securities Regulatory Commission said yesterday it would take more steps to ensure stable markets, reported Reuters.

    Analysts say increased government spending, combined with five interest-rate cuts since last November, mean that China's economic risk has diminished.

    "We remain of the view that the considerable monetary, fiscal and macro prudential policy stimulus already in place and expected will put full-year growth in the 'about 7 per cent' range," said Tim Condon, head of research for Asia at ING Bank in Singapore.

    The National Development and Reform Commission, China's top economic planning agency, tried to back up that view, saying yesterday that the country's power usage, rail freight and property market have all shown improvement since last month, indicating the economy is stabilising.

    Meanwhile, China's reserves, the world's largest, fell by US$93.9 billion (S$134 billion) last month to US$3.557 trillion, central bank data showed yesterday.

    That reflects Beijing's attempts to halt the slide in the yuan and stabilise financial markets.