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)
