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People’s Bank Of China Sees Chinese Economic Growth Around 6-7% In The Next Few Years

People's Bank Of China Sees Chinese Economic Growth Around 6-7% In The Next Few Years

BEIJING (Reuters) — China will be able to keep economic growth at around 6 to 7 percent annually over the next three to five years, a top People’s Bank of China policymaker said Saturday, a day after the bank cut interest rates for the sixth time in less than a year. The comments by Yi Gang, vice governor of the PBOC, appeared to be aimed at reassuring investors this level of growth, the slowest pace in two decades but still faster than other major economies, is the Chinese economy’s “new normal.”

“China’s future economic growth will still be relatively quick. Around seven, six-point-something — these will all be very normal,” Yi said at a conference in Beijing.

As well as cutting interest rates Friday, the PBOC lowered the amount of cash that banks must hold as reserves.

Both moves were bids to jump-start growth in China’s slowing economy, a drag on global growth that has been of major concern in emerging markets and other leading economies.

Monetary-policy easing in the world’s second-largest economy is at its most aggressive since the 2008-2009 financial crisis, as growth looks set to slip to a 25-year-low this year of under 7 percent.

China will lower the reserve requirement ratio — the amount of cash that major banks need to keep on hand — in the future at a “normal” pace, Yi said. The vice governor said the PBOC planned to keep interest rates at a reasonable level to reduce the corporate debt burden, and noted that interest-rate liberalization does not mean that the central bank would reduce regulation of rates. China will also continue to set benchmark lending and deposit rates for some time, he said, but these rates would not restrict market pricing.

Data released Monday showed China’s economy grew 6.9 percent between July and September from a year earlier, dipping below 7 percent for the first time since the global financial crisis.

Yi noted that China’s stock market, which has fallen sharply since June, had completed most of its adjustments and that the yuan, which was buffetted in the wake of a surprise devaluation in early August, has stabilized. The PBOC was looking into leverage levels in the debt market, he noted.

Yi also commented on China’s debt levels. He said China did not have exceptionally high debt levels, and while the bank is not overly anxious about cutting the level of leverage in the economy, the overall strategy is to stabilize leverage levels.

(Reporting by Gui Qing Koh and Alexandra Harney; Editing by Jeremy Gaunt)

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Slower Chinese Economic Growth and a Cheaper Yuan


The Chinese Yuan has fallen versus the US dollar for four months in a row. This is the Chinese currency’s worst performance since 2007. For Forex traders this has to do with slower Chinese growth and a cheaper Yuan, now and in months to come. The government / People’s Bank of China are trying to avoid an economic hard landing in a country that has been the envy of the developing world for decades. There is still the risk of a Chinese real estate crash due to a grossly inflated housing bubble. Credit has been way too easy, especially for those with Communist connections in the land of state run capitalism. With slower Chinese growth and a cheaper Yuan for some time to come how should a Forex trader react? As usual fundamental analysis and attention to technical details are important. And, as always never trade what you do not understand. Those admonitions having been made, here are a few Forex thoughts about slower Chinese economic growth and a cheaper Yuan.

What Goes Around Comes Around

The USA was stuck in an inflationary slide throughout the 1970’s largely due to excess spending in the Vietnam War coupled with the vastly expanded social programs. Common thinking was that the day of the USA was past and Japan was set to take over the economic world. Then the Regan administration took Milton Friedman’s advice and jacked interest rates up. This inaugurated one of the longest American economic expansions ever. Japan did seem ready to take over the world by the late 1980’s until a soft underbelly of hidden loans lead to two decades of deflation from which the nation is just now recovering. Then comes China with its vast cheap labor pool and a billion person market for Western products. Investment flourishes and everyone needs to manufacture in China using Japanese management techniques and German engineering. The internet provides retailers with immediate sales data and orders are wired to China to efficiently take advantage of hot sales items. Unfortunately many Western companies also outsource their expertise and find that they have a front office and design shop but little else in the supply chain. North America and Europe become huge and lucrative markets for Chinese products. A cheap Yuan is part of the picture as China manipulates interest rates and buys US treasuries to the tune of a trillion or so. And then the 2008 recession hits and orders to Chinese factories from North America and Europe decrease. And manufacturing starts to move back to the USA, Germany, France, etc. China needs to sell internally and has not yet accomplished that goal. In the meantime we are seeing slower Chinese economic growth and a cheaper Yuan.

Trading Opportunities

Where are slower Chinese growth and a cheaper Yuan going? Most experts expect to see continued shrinking of Chinese growth. The nation’s economy is still expanding but in all likelihood Chinese growth will eventually look like what we see in Japan, North America and Europe. What goes around comes around and China cannot run a huge trade excess with the rest of the world forever. Other nations will not put up with that and other factors apply as well. China’s one couple one child policy has left China with an aging population and therefore fewer young and cheap workers. The Yuan is falling and is unlikely to rebound soon. Traders may wish to use Forex options in this regard in order to contain risk and leverage their trades.


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