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Nation to target weak links to boost economy

By Jiang Xueqing (China Daily) Updated: 2014-08-09 07:40

Unlike the United States, China will not use quantitative easing to stimulate the economy but will target financial support to weak links of economic development, said Ma Jun, chief economist of the People's Bank of China.

"The US Federal Reserve pumped several trillion dollars into the economy through quantitative easing. In terms of the amount of money involved, re-lending and other mini-stimulus measures taken by China's central bank cannot compare with the US. It is clear that we don't flood the market with liquidity" Ma said on Friday.

"Besides, speaking from the macroeconomic perspective, it is unnecessary for China to use quantitative easing. The economy does not face a huge downward pressure, and the job market is improving, so China doesn't need huge stimulus," he said.

While remaining generally optimistic about the domestic economy, he said the biggest downward pressure will come from the housing market.

Researchers of the central bank found that a 10 percent output drop in the housing sector will cause decreases varying from 4 percent to 8 percent in sectors such as cement, mining, petroleum and coking, as well as iron, steel and nonferrous metals.

Earlier this year, some economists called for the PBOC to have a uniform cut of the reserve requirement ratio.

Ma said whether the central bank will further ease liquidity in the second half of 2014 depends on the macroeconomic situation and whether the yuan funds outstanding for foreign exchange will continue to drop.

In June, new yuan funds outstanding for foreign exchange fell by 88.28 billion yuan ($14.34 billion) from May, according to the PBOC.

The PBOC has cut the reserve requirement ratio twice this year. Effective June 16, it lowered the RRR by 50 basis points for commercial banks that have extended a certain portion of their loans to the farming sector or small businesses. The move followed a cut in April for county-level rural commercial banks and rural cooperative banks.

Targeted RRR reductions will boost economic restructuring. The central bank made such cuts because otherwise the liquidity released will not flow into the sectors it intends to support. In addition, targeted RRR cuts will help lowering the financing costs for micro-sized and small enterprises during an economic downturn, Ma said.

Nation to target weak links to boost economy

Nation to target weak links to boost economy

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