Governor of the People's Bank of China (PBC) Zhou
Xiaochuan said Saturday that the Chinese economy is facing
challenges but the prospective growth is rosy.
In a written speech to the International Monetary and Financial
Committee held in Washington, Zhou said that the Chinese economy
experienced sound development in 2003, with gross domestic product
(GDP) growing by 9.1 percent over the previous year and per capita
GDP reaching US$1,100, passing an important milestone.
The main challenges facing the Chinese economy are that
aggregate investment in some industries and regions is somewhat
excessive, inflationary pressures are building up and much remain
to be done in the areas of employment and social security, he
said.
The Chinese central bank governor stressed that solutions to
these problems will require China to pay even closer attention to
proper macroeconomic management and to the proper handling of the
relationship between reform, development and stability.
To deal with the accelerating rise of the commodity prices index
during the past six months, China employed a combination of
monetary policy tools and strengthened preemptive adjustments and
fine-tuning by controlling excessive growth of monetary credit,
Zhou said.
For instance, the PBC has twice employed required reserve ratio
as a monetary policy tool to strengthen macroeconomic management,
he said. It has raised the required reserve ratio by 1.5 percentage
points from 6 percent to 7.5 percent.
On the exchange rate of Chinese currency Renminbi, he said that,
in the medium and long terms, the Renminbi exchange rate will
develop in the direction of increased flexibility. But current
focus of the Chinese government is, while deepening financial
reforms, to take further steps toward exploring and improving
Renminbi exchange rate formation mechanisms.
Zhou said that so far this year, the Chinese economy has
continued to grow at a rapid rate and this year's growth target for
the Chinese economy is about 7 percent.
Zhou also warns of prime risks to global economic growth. The
international community should clearly recognize the prime risks to
global economic recovery and all countries should actively
participate in policy coordination and cooperation and strive to
maintain sustained global growth, he said.
According to Zhou, the vulnerability affecting global economic
growth since the Dubai meeting in last September has by no means
been entirely eliminated. Geopolitical confrontation persists, and
the debt remains a very conspicuous problem in some emerging
markets.
Although the global economy shows obvious momentum toward
recovery, it is still true that the global economy relies
excessively on condition in certain individual countries, he said.
Therefore, great uncertainty remains as to whether the US economy
has entered a period of stable growth.
Zhou also said that uncertainties in the timing and magnitude of
macroeconomic policy adjustments by the major industrial nations
are putting the world economic trends at increasing risks.
If an interest rate hike is not well timed, or if it is not
executed with proper intensity, the result might be a short-term
upheaval in financial markets, which would in turn adversely affect
the global recovery, he said.
He also pointed out that structural reforms in some industrial
countries have been slow, which has had a direct impact on stable
economic growth and sustained development.
Meanwhile, Zhou warned that the debts of some emerging markets
and developing countries are not likely to remain sustainable and
geopolitical tensions show no clear sign of abating.
Therefore, he said that main industrial countries should assume
the primary responsibility for global economic recovery and
adjustment. They need to increase market confidence, give free rein
to their comparative advantages, gradually improve external account
conditions and enhance the sustainability of growth.
Emerging markets and developing countries also should vigorously
take advantage of the current favorable environment brought on by
the economic recovery, he added.
The International Monetary and Financial Committee is the
policy-making body of the International Monetary Fund.
(Xinhua News Agency, April 24, 2004)