China economy 2016: stabilizing and progressing

“China’s economy has entered what we call a new normal, in which major changes are taking place in terms of growth rate, development model, economic structure and drivers of growth. But the economic fundamentals sustaining sound development remain unchanged.” – President Xi Jinping’s remarks at the World Economic Forum in Davos

Despite a sluggish global economy, China’s economy grew by 6.7 percent in 2016, still one of the highest in the world.

The growth of the gross domestic product hit the full year target of about 6.5 percent. The performance in the fourth quarter bucked the trend of decline for the first time in the past two years.

The economy was within a proper range, with improved quality and efficiency, said Ning Jizhe, the chief of the National Bureau of Statistics.

Faced with the slowdown pressure, the Chinese government adopted a set of measures in various fields to improve the economic structure and quality, such as reducing overcapacity, streamlining administrative approvals and boosting innovation to stimulate the economy.

But economists warned that the foundation for steady growth this year remains shaky, as growth of industrial production, fixed-asset investment, inflation-adjusted retail and property sales in the fourth quarter were either slower or flat compared with the previous quarter.

1Gross domestic product (GDP)

China’s economy grew 6.7 percent year-on-year to 74.41 trillion yuan ($10.83 trillion) in 2016, the slowest pace of growth in 26 years, but well within the government’s target range of 6.5 to 7 percent.

The service sector accounted for 51.6 percent of GDP in 2016, up 1.4 percentage points year-on-year. The service sector ratio exceeded 50 percent for the first time in 2015.

Value added in the service sector increased 7.8 percent year-on-year to 38.4 trillion yuan, and that in the primary and secondary sectors rose 3.3 percent and 6.1 percent respectively to 6.37 trillion yuan and 29.62 trillion yuan.

Growth in the fourth quarter came in at 6.8 percent, accelerating from the 6.7 percent in the third quarter.

2Consumer price index (CPI)

China’s consumer inflation reported faster growth last year, as a price rebound in commodities gradually drove up prices.

The consumer price index (CPI), a main gauge of inflation, rose 2 percent in 2016 — up from 1.4 percent in 2015 — the same rate as 2014. The figure was below the government’s 3-percent target set for the whole year.

In December, the CPI increased 2.1 percent from a year ago, slightly down from November’s 2.3-percent rise.

Sheng Guoqing, senior statistician of the National Bureau of Statistics, attributed December’s slowdown to a high base in the same period of 2015 and weak price increases in vegetables and fruit.

“The inflation data show China’s economy ending 2016 on a strong note,” Bloomberg economist Tom Orlik said. “Consumer price gains edged down, but an increase in the non-food index pointed to resilient demand.”

Orlik also predicts that CPI inflation will continue to edge down over the course of the first quarter as soaring food prices drove the index higher in the same period of 2016.

3Producer price index (PPI)

China’s producer price growth beat market expectations in December and surged the most in more than five years supported by rising commodity prices and robust demand.

The producer price index (PPI), which measures costs for goods at the factory gate, rose 5.5 percent year on year in December, the highest reading since September 2011.

The PPI for the whole year dropped 1.4 percent, recovering from a 5.2 percent decline in 2015.

Under pressure from a downturn in the broader economy, the PPI had been trapped in negative territory for 54 months before returning to growth in September. Analysts expect the current rising trend to continue in January.

The better-than-expected increase reinforces views that the world’s second-largest economy continues to show signs of stabilization, adding to hopes that China will gain a firm footing in the start of the new year.

That is also boosting profits for Chinese companies and generating more cash flow to help pay off their loans.

Factors including the exchange rate of the yuan and rising prices of coal and steel led to continuous rises in the PPI, NBS senior statistician Sheng Guoqing said, adding that market demand also saw steady recovery thanks to the ongoing industrial overhaul.

4Purchasing managers index (PMI)

The manufacturing Purchasing Managers’ Index (PMI) came in at 51.4 in December, lower than 51.7 in November and staying above the 50-point boom-bust line for the fifth straight month.

The PMI for the whole year averaged at 50.3, compared to 49.9 for 2015.

Despite the slight decline in December, the latest data, the second-highest monthly reading this year, reaffirmed the momentum for a stabilizing Chinese economy, said Zhang Liqun, a researcher with the Development Research Center under the State Council.

A reading above 50 indicates expansion while below 50 suggests contraction.

The sub-index for new orders stayed at the same level as the previous month, the highest point this year. The sub-index for new export and import orders stayed above the boom-bust line of 50 for a second month.

On a quarterly basis, manufacturing PMI had been rising steadily, from the first quarter’s lower than 50 to the second and third quarters’ slightly above 50, and to over 51 for the fourth quarter.

Chen Zhongtao, analyst at the China Logistics Information Center, said positive factors had added up in China’s economic activity, including increasing demand, rising prices, better performance for companies, restructuring and a good job market.

5Foreign trade

China’s foreign trade surplus narrowed to 3.35 trillion yuan ($486 billion) in 2016, down 9.1 percent from a year earlier.

The country’s exports in yuan-denominated terms dropped 2 percent to 13.84 trillion yuan year on year in 2016, while imports rose 0.6 percent from the 2015 level to 10.49 trillion yuan.

For the whole year, total export and import value decreased 0.9 percent year on year to 24.33 trillion yuan, narrowing down from a 7 percent decline in 2015.

Huang Songping, spokesperson of the General Administration of Customs, said China faced a “complicated and grim” condition for foreign trade last year with increasing uncertainties and instabilities, but thanks to government efforts, foreign trade has stabilized and started to picking up steam from the second half of 2016.

Huang attributed the trade recovery to supportive policies, a rebound in external demand and a stabilizing domestic economy.

December imports beat forecasts slightly, growing 3.1 percent on its strong demand for commodities which has helped buoy global resources prices, while exports fell by a more-than-expected 6.1 percent on-year.

While the export picture has been grim all year, with shipments rising in only two months out of 12, import trends have been more encouraging of late, pointing to a pick-up in domestic demand as companies brought in more raw materials from iron ore to copper to help feed a construction boom.

China imported record amounts of crude oil, iron ore, copper and soybeans in 2016, plus large volumes of coal used for heating and in steelmaking.

6New yuan lending

China’s new yuan-denominated lending beat market estimates to hit 1.04 trillion yuan ($150.29 billion) in December, up from 794.6 billion yuan a month ago.

New yuan-denominated loans for the whole year amounted to a record high of 12.65 trillion yuan, 925.7 billion yuan more than in 2015.

The rise was mainly attributed to lending for home purchases, which surged to 5.68 trillion yuan in 2016 from 3.05 trillion yuan in 2015, although the government rolled out measures to cool the overheated property market.

However, businesses borrowed less. Loans to non-financial enterprises and organizations stood at 6.1 trillion yuan last year, down from 7.38 trillion yuan in 2015.

The M2, a broad measure of money supply that covers cash in circulation and all deposits, rose 11.3 percent year-on-year to 155.01 trillion yuan by the end of December.

The narrow measure of money supply (M1), which covers cash in circulation plus demand deposits, climbed 21.4 percent year-on-year to 48.66 trillion yuan.

The central bank data showed newly added social finance, a gauge of funds that firms and households receive from the financial system, shrank slightly to 1.63 trillion yuan in December.

7Industrial output

China’s industrial output expanded 6 percent year-on-year in 2016, largely due to strong performance in the high-tech industry.

Industrial output, officially called industrial value added, is used to measure the activity of designated large enterprises with annual turnover of at least 20 million yuan ($2.9 million).

In December, the total value added of the designated industrial enterprises was up by 6 percent year-on-year, or 0.46 percent every month.

Industrial output in the high-tech industry surged 10.8 percent year-on-year, 4.8 percentage points faster than growth in the secondary industry, accounting for 12.4 percent of the designated industrial enterprises, 0.6 percentage points more than the previous year.

Mining output dropped 1 percent, while manufacturing output increased 6.8 percent. The output for electricity, thermal power, gas and water grew 5.5 percent.

8Retail sales

China’s retail sales of consumer goods grew 10.4 percent year-on-year to 33.23 trillion yuan ($4.84 trillion)in 2016.

The growth was 9.6 percent year-on-year after deducting price factors.

In December, the nominal growth of retail sales was 10.9 percent year-on-year, slightly higher than the 10.8 percent increase in November.

Online sales boomed in 2016, surging 26.2 percent year-on-year to reach 5.16 trillion yuan.

Retail sales contributed significantly to China’s economic growth as the country shifts from an export-driven economy to a consumer society.

Retail sales of consumer goods, a key indicator of consumption, are expected to jump by 10.2 percent year-on-year to exceed 37 trillion yuan in 2017, contributing more than 70 percent of the country’s economic growth, according to a report issued by the China General Chamber of Commerce.

9Fixed-asset investment

China’s fixed-asset investment grew 8.1 percent year-on-year, down from 10 percent in 2015 and 15.7 percent in 2014.

This indicates continued deceleration of growth in fixed-asset investment: money used to purchase and build factories, machines, property and other fixed facilities.

Fixed-asset investment growth has been declining since reaching an annual high of 10.7 percent for January-March.

In the agricultural sector, fixed-asset investment jumped the fastest, up 21.1 percent year-on-year. It was followed by 10.9 percent growth for the service sector and 3.5 percent for the industrial sector.

10Real estate investment

Investment in real estate development grew 6.9 percent year-on-year in 2016, 1.1 percentage points faster than in the first three quarters, and 5.9 percentage points faster than a year earlier.

Factoring in price changes, property investment increased 7.5 percent year-on-year.

For residential properties, investment rose 6.4 percent year on year, and the floor space of new residential construction expanded 8.7 percent year on year.

Property sales jumped 22.5 percent in terms of floor area and 34.8 percent in terms of value.

By the end of December, 695.4 million square meters of property remained unsold in China, down 3.2 percent year on year.

The government has been trying to wean the economy off sizzling property development to make it more sustainable.

The Central Economic Work Conference at the end of last year set the tone for the real estate market in 2017: stable and healthy development.

11Personal income

China’s per capita disposable income came to 23,821 yuan ($3,469) in 2016, up 6.3 percent year-on-year in real terms.

Urban and rural per capita disposable income reached 33,616 yuan and 12,363 yuan in 2016, up 5.6 percent and 6.2 percent in real terms, respectively.

The per capita income of urban households was 2.72 times that of rural households.

The average monthly income of rural migrant workers was 3,275 yuan, up by 6.6 percent year-on-year, compared with a 7.2 percent increase in 2015.

China aims to double the per capita income of its urban and rural residents by 2020, from 2010 levels, to build a moderately prosperous society.

China Daily

CSRC: China is to accelerate financial reform

CHINA is trying to lure more foreign capital into the mainland’s financial market and will stick to the stance of reform and opening-up, the country’s top securities regulator said today during a press conference amid recent regulatory signals for further financial reforms.

Fang Xinghai, vice president of the China Securities Regulatory Commission (CSRC), said China will attract more foreign investors to participate in China’s futures industry to enhance China’s weight on commodity pricing.”

Commodity is more about the international market,” Fang said. “To isolate foreign investors’ participation in the mainland’s market will hinder China to achieve bigger role on the global stage.”

Fang also said that the regulator will study more foreign ownership of brokerages gradually in the future, without giving further timetable on the move. Overseas banks now can own up to 49 percent ownership in securities and fund-management joint ventures in the nation, while Hong Kong and Macau companies are allowed taking control of their ventures under economic partnership agreements.

The 49-year-old vice chairman also pledged to keep studying the openings of the country’s international bourse to allow foreign companies to list in the mainland market. However he pointed out several technical obstacles that may delay the plan, naming different standards on accounting, regulation and information disclosure between domestic and foreign markets.The conference held on Sunday was jointly attended by Liu Shiyu, chairman of the country’s stock market regulator, and Li Chao, another vice chairman of CSRC who oversees country’s funds and private equity market.

Liu, who took helmet of CSRC a year ago, said China will allow more companies to list on its stock market to boost support for its economy on Sunday, dismissing concerns that more supplies of shares can depress the market.

The media conference of CSRC came on heels of tightening regulation on China’s insurers, indicating the country’s faster pace of financial reforms. Last Friday, China has reportedly appointed financial-sector expert Guo Shuqing as the new head of China Banking Regulatory Commission, according to some local media reports but the CBRC has yet to confirm, to tackle growing risks from China’s massive shadow-banking sector and booming asset-management products.

While China’s insurance regulator banned several players, including Evergrande Life Insurance Co, from stock investments for one year, stepping up its crackdown on the industry’s most “radical” investors in a bid to rein in risks.

Shanghai Daily

China says US trade war ‘not an option’

A potential trade war should not be used as an “option” to spoil Chinese-American relations as the two countries are able to resolve bilateral trade disputes through dialogue, Commerce Minister Gao Hucheng said yesterday.

China and the United States, the world’s largest traders, should work together to promote trade and investment, said Gao, speaking at a briefing in Beijing.

A good relationship between the two countries not only benefits both sides but helps global economic growth and recovery amid a still weak momentum, Gao said.

US President Donald Trump pledged during his election campaign to raise import duties on Chinese goods to 40 percent but he has yet to take formal action. He also said he would declare China an “exchange rate manipulator.”

However, in a phone conversation earlier this month to Chinese President Xi Jinping, Trump said that the United States was ready to work with China to take bilateral ties to new historic heights.

Gao said yesterday China would not comment too much on what the US president said during his election campaign, but would focus on the new American government’s attitude toward trade with China.

“As a consensus reached between leaders of the two countries, cooperation was the only right choice for China and the US,” Gao said.

Whatever changes in the US policy toward China, the trade relations between the two nations will eventually return to “the track of mutual benefits and win-win,” he said.

China is now America’s largest trading partner and its third largest export destination after Canada and Mexico, according to a report from the US-China Business Council.

China’s direct investment in America hit a record high of US$45 billion in 2016, a threefold increase on 2015.

Robust bilateral trade and investment have supported some 2.6 million jobs in the US, according to the report.

“A trade war should not become an option,” Gao said. “If the two sides fight, both will be hurt.”

The US last year replaced China as the world’s largest trader as China’s foreign trade declined.

Gao yesterday said China would not seek a “blind expansion in exports‚“ as it could undermine the country’s resources and environment.

China would instead gain new grounds through improved standards, techniques, brands and services.

Addressing China’s tightening inspection on outbound investment since late last year, Gao said measures were being taken to control irrational and blind outbound investment, where companies made huge investment into high risk areas and fields unrelated to their core businesses.

The commerce minister said the government would guide companies to make more prudent and rational outbound investment while improving rules to facilitate outbound investment and protect the rights of investors.

Shanghai Daily

Final countdown on for new FTZs

Final countdown on for new FTZs

Preparation for seven new free trade zones (FTZs) is moving into the final stages, with the launch date expected within weeks, Security Daily reported on Monday.

The country’s third batch of pilot FTZs, which aim to boost inland regions, are likely to be launched as early as the end of the month, Xiao Benhua, professor of Shanghai Lixin University of Accounting and Finance, told the newspaper.

Chinese authorities approved FTZs in Liaoning, Zhejiang, Henan, Sichuan and Shaanxi provinces, as well as Chongqing municipality, last August following the success of four previous zones.

Designed as a testing platform for economic reforms, an FTZ is able to lower the threshold for businesses to set up new companies, cut restrictions on capital flows, and offer more market access to foreign investment.

“The FTZ boom certainly will encourage a large number of foreign companies to either establish or extend operations in these seven provincial-level regions to benefit from favorable tax policies and simplified goods trade procedures,” said Li Gang, chairman of the Sichuan provincial branch of the China Council for the Promotion of International Trade.

About 10,000 companies are expected to register in the Henan FTZ that takes in Zhengzhou, Kaifeng and Luoyang cities, Jiao Jinmiao, head of the provincial Commerce Department, said last month.

He said that preparations were nearly done and the upgraded administrative services hall can start working once the FTZ gets the greenlight.

China Daily

New ‘green card’ to ease daily life for foreigners

China will update its “green card” policy this year to make life easier for foreign residents, a source at the Ministry of Public Security confirmed on Monday.

With improved security features, the permanent resident permit is expected to guarantee more rights equal to those of Chinese citizens, such as when buying railway tickets, checking in at hotels and purchasing property.

Also on Monday, a meeting of the Central Leading Group for Comprehensively Deepening Reforms, presided over by President Xi Jinping, required further reform of permanent residency policy to facilitate foreigners living here.

“The reform should serve the nation’s talent strategy, address concerns of the public, optimize the design of the credentials and improve the information system,” a statement released after the meeting said.

The meeting also called for further efforts to make sure green card holders could enjoy all rights related to residency.

“The current green card is designed for entry and exit at the borders,” said a Ministry of Public Security division chief who requested anonymity.

“However, the new card will be more commonly accepted in daily life. A foreign permanent resident could, for example, apply for a driver’s license using only his or her green card.”

The official said the ministry is in advanced discussions with other government agencies and will release a draft revision soon.

Noyan Rona, chief representative in the Shanghai office of Turkey’s Garanti Bank, is a green card holder.

“Many officers at border controls have not recognized my green card. There are many times they made phone calls to their superiors to double-check,” he said.

China began issuing permanent resident permits in 2004. The green card is among the most difficult to obtain in the world due to the high requirements involved.

From 2004 to 2013, only 7,356 foreigners were granted the card.

However, China has been easing its residence and entry policies for foreigners since September 2015.

Last year, 1,576 foreigners became permanent Chinese residents, an increase of 163 percent over 2015, according to the ministry.

Zhang Jie, a professor at People’s Public Security University, said the nation is undergoing a shift from an emigration country to an immigration country.


Door is opening for new business

Foreign capital to gain entry into more areas of economy
China’s moves to further ease foreign investment policies will open doors in some monopoly sectors this year while prohibiting local governments from curbing foreign companies, experts said.

Their comments came after the State Council issued a document late last month outlining 20 measures to spur declining investment activity, including opening the service and financial sectors, and encouraging foreign businesses to bid for infrastructure projects via franchises.

The National Development and Reform Commission, the top economic planner, for the first time delegated approval power for foreign investment under $300 million and not on the negative list to provincial-level governments.

The negative list specifies investment sectors that are off-limits to foreign investors and opens industries not on the list to treat overseas and Chinese companies equally.

“The policy adjustment will bring foreign investment, technologies, practical management methods and human resources to national development strategies,” said Lu Feng, a professor at the National School of Development of Peking University.

One of the goals of the government’s Made in China 2025 strategy is for foreign companies to be treated the same as domestic enterprises.

Additionally, manufacturing industries such as rail transportation, motorbikes and ethanol fuels will be opened up to foreign investment.

Lu said foreign companies can help propel the Made in China 2025 strategy, pushing domestic companies to accelerate the reform of traditional industries and the development of emerging industries and the service sector.

Under the new rules, foreign investment above $300 million will be examined and approved by the NDRC. Investment and capital increases by global companies over $2 billion need to be filed with the State Council, the highest executive agency of State power.

Yu Jianlong, secretary-general of Beijing-based China Chamber of International Commerce, said providing a fairer and more flexible investment environment can help Chinese companies tackle production-cost challenges from foreign rivals.

“Nearby countries, especially Vietnam and Thailand, have been initiating their own moves to entice more foreign investment to their shores,” he said.

However, Feng Hao, a rail transportation researcher at the NDRC, warned that Chinese companies such as China Railway Rolling Stock Corp, the country’s rail vehicle manufacturer, must prepare for challenges from foreign rivals like Siemens and Bombardier, which hope to gain a green light in the domestic market.

“Moreover, international core part manufacturers for rail vehicles such as ABB Group and Knorr-Bremse AG also would like to enlarge their market share in China, indicating that Chinese companies will face fierce competition in their home market,” said Feng.

Tang Wenhong, director of the Ministry of Commerce’s Department of Foreign Investment Administration, said foreign capital’s market access will also be improved in other service businesses, such as accounting, architectural design and rating services. “Sensitive industries” such as telecommunications, internet and education will gradually be opened up.

China Daily

Expanded financial services coming to innovation companies

Expanded financial services coming to innovation companies

Expanded financial services coming to innovation companies
Shougang Fund signed a strategic partnership agreement with SPD Silicon Valley Bank in Beijing, Jan 8, 2017. [Photo provided to]

Shougang Fund, a subsidiary of China’s major steel maker Shougang Group, signed a strategic partnership agreement with SPD Silicon Valley Bank, or SSVB on Sunday, to offer expanded financial services for more innovation companies.

The two sides have set up an innovation investment fund in Zhongguancun, Beijing’s “Silicon Valley”. They will select suitable innovation startups and then provide financial support through the investment and loan linkage mechanism.

By working together, Shougang Fund will make equity investments and the SSVB will extend loans. As equity investment and credit loans are both risky, the two are expected to continue the program through equity warrants.

Zhao Tianyang, president of Shougang Fund, said the company aims to provide more kinds of financial services instead of simply making equity investments.

“We expect to spend five years, 10 years or even a longer time to build a better entrepreneurship and venture capital system, catering to startups’ various needs during their different development periods,” Zhao said.

Shougang Fund said the two sides will invest in innovation startups mainly from four areas, including enterprise services, life sciences and healthcare, artificial intelligence related cutting-edge technologies and new materials.

The two organizations will bring more resources from both sides. During the process, they will also promote mergers and acquisitions and industrial integration.

David Jones, President of SSVB, said China is important to innovation economy as a developer of technology and a large market for the rest of the world.

“We aim to be the most sought-after bank in China for innovators, enterprises and investors,” he said. “We believe by leveraging the strengths of both sides, we will bring more unique values to the China innovation ecosystem. With our upcoming Beijing branch of SSVB, we also believe we will be able to serve more tech and innovation companies from Beijing.”

SSVB, a joint venture bank between Shanghai Pudong Development Bank Co Ltd and US-based Silicon Valley Bank, was formed in 2012 and is China’s first commercial bank dedicated to serving the local innovation community.

“In terms of the innovation, project and operation platform, Beijing and Silicon Valley build a bridge of collaboration,” said Liu Yinchun, deputy secretary general of Beijing Municipal People’s Government, “I look forward to deep cooperation between Beijing and more leading countries and regions in the future.”

China Daily

15 years in WTO, China now standing as standard-bearer of globalization

BEIJING – With tough transitional challenges ahead and painstaking adjustments behind, China has risen to become a bellwether of global free trade and a token of globalization at large, after 15 years since its accession to the World Trade Organization (WTO).

An undisputable winner of globalization, China has undergone the whole process with costs and pains. But all that has benefited China and the world due to the country’s impregnable integration into the global system has proved the worthiness of such afflictions.

Among all the catalysts for China’s success, openness always comes first. The nation’s milestone accession to the world’s largest trading bloc has made a perfect marriage between the nation and the global value chain, as burgeoning Chinese businesses begin to go global, and international enterprises ride on the crest of their ambitions in the tantalizing Chinese market.

More remarkable is China’s readiness to dance with “wolves” fed by the global free trade system. Instead of being a head-in-the-sand ostrich, China has from the beginning responded to the challenges with resolute reforms to make a market economy at all costs, rather than quench its initial disorientation with poisonous protectionism.

China’s success after its entry into the WTO has proved that compared with other resources, the stamina nourished by an inclusive and flexible mindset will win in the race for the silver line of the global free trade.

For all these years, political and business leaders of the Asian country have grown increasingly accustomed to acting within the international legal and business framework, marking a stark contrast to the raging economic protectionism and political conservatism unleashed by their counterparts in Western developed countries, once major advocates for and beneficiaries of free global trade.

More annoying are some penny-wise maneuvers of some specific economies to take advantage of these alarming “black swans” against the globalization for their own goods.

Cases can be found in the announcements of Japan and its Western allies, all major WTO members, to break their moral and legal commitments to the organization by refusing to recognize China’s deserved “market economy status (MES),” even though China has automatically switched over to the status under WTO rules on Sunday.

Nevertheless, the refusal will neither write off China’s dedication to the world’s free trade for 15 years, nor undermine its resolve to continue pursuing the global connectivity by means of such arrangements as the Asian Infrastructure Investment Bank, the Belt and Road Initiative, and the Free Trade Area of the Asia-Pacific.

The West’s protectionist shenanigans in the excuse of defending the public wellbeing is but an attempt to cover up its reluctance to lose the rule-making monopoly, one of the chief culprits for the current flawed global system that is more preferable to the affluent minority.

It is highly advisable for all the global trade partners to relinquish the zero-sum mentality and work with China for mutually beneficial cooperation to make a robust global recovery.

China Daily

China prepared for economic uncertainties

China is prepared for economic and exchange rate fluctuations, and able to cope with uncertainties, a central bank official said on Thursday, as the yuan continued to fall, hitting an eight-year low against the US dollar.

Despite its continual fall, analysts familiar with China’s monetary policymaking said the yuan is unlikely to depreciate by a large margin in the coming year.

China prepared for economic uncertainties

“China has made some macroeconomic policy adjustments, including exchange rate system reform, in case of future uncertainty,” said Huang Xiaolong, deputy head of the financial stability bureau of the People’s Bank of China, the central bank.

He told an economic forum that China has undergone reform of its exchange rate system to improve the elasticity and flexibility of the yuan, thus enabling the country to deal with uncertainties caused by any domestic or international economic changes.

The yuan’s central parity rate, decided by the central bank in accordance with market conditions, weakened by 100 basis points to 6.87 against the US dollar on Thursday, the 10th consecutive day the currency has fallen, according to the China Foreign Exchange Trading System. It is the lowest level since mid-June 2008.

Yao Yudong, former head of the central bank’s financial research institute, said at the same forum that the US dollar index might be peaking and, therefore, the yuan’s exchange rate against the US dollar will not fall continually. “Don’t bet on continual depreciation of the yuan – that is impossible.”

Li Daokui, an economist at Tsinghua University and former member of the central bank’s monetary policy committee, said the yuan’s depreciation against the US dollar will not exceed 5 percent next year. “It could be 3 percent, or even less,” Li said.

He added that given the massive US dollar liquidity in the international financial market, it would be “an act of suicide” for China to allow the yuan’s exchange rate to fluctuate entirely based on market changes.

Analysts said that if policymakers want the yuan to strengthen, the priority should be to press ahead with the country’s economic restructuring reform.

“The depreciation of the yuan is mainly caused by a strengthening US dollar, demand from domestic enterprises and residents for diversifying their asset portfolios, and the slowdown of the Chinese economy,” said Huang Yiping, an economist at Peking University.

“To reverse the trend (of yuan depreciation), China should, ultimately, rely on progress of its structural reform,” said Huang, who is a member of the central bank’s monetary policy committee.

China Daily

China to achieve goals in advance

CHINA will achieve this year’s capacity reduction target ahead of schedule but a surplus of steel and coal supplies is expected to linger by 2020, National Development and Reform Commission said yesterday.

China will complete this year’s capacity reduction goal in the steel industry by the end of October, and meet the target for the coal sector by November, the NDRC said in a media briefing yesterday.

The NDRC estimates the demand for coal at 4.1 billion tons by 2020, with the supply set to be higher at 4.6 billion tons.

Cutting overcapacity ranks high on the government’s reform agenda in a bid to boost the country’s economic performance.

China’s annual crude steel surplus is estimated at around 300 million tons, three times the annual output of Japan, the world’s second-biggest producer. China has shut down steel plants with total capacity of above 90 million tons over the past five years and plans to reduce output by an extra 100-150 million tons by 2020.

“The government is leading the industry toward a gradual capacity reduction,” said Hu Kai, senior vice president who focuses on the state-owned enterprises at Moody’s.

“The pressure of defaults in overcapacity industries is eased as steel and coal companies posted better profit growth in the third quarter.”

But Hu said the fight to cut excess capacity needs a stable policy for at least two years to curb volatile prices in the commodities market.

Shanghai Daily