China will continue to follow a prudent monetary policy,
maintaining the stability of the Renminbi and interest rates this
year, but fine-tuning will be enhanced to absorb negative impacts
from uncertainties hanging over the world economy, the central bank
announced yesterday.
"The international financial situation for 2003 remains austere and
there is considerable uncertainty regarding global economic
growth," the (PBOC) said in its 2002 monetary policy report
released yesterday.
Major concerns dogging the global financial outlook, it said,
include the prospect of an imminent United States-led war on Iraq,
terrorism, the slim possibility of a prompt US economic recovery as
well as the looming threat of global deflation.
Such uncertainties have created new variables in the external
environment of China's economic growth and a continuing spike in
global oil prices in the first half of this year, the PBOC said,
may have a "certain impact" on China's international balance of
payments.
But reasons for optimism are also abound. Asian economies continue
to fare relatively well, paving the way for closer economic
co-operation in the region, it said, and the greater investment
risks in many parts of the world will help China remain a leading
recipient of foreign direct investment (FDI).
China surpassed the US for the first time last year to reap the
world's largest FDI inflow of more than US$50 billion.
Domestically, a massive State asset management reform that was
announced late last year and a stronger emphasis on developing
non-State sectors promise to further expedite productivity, and
increasingly active private investment will enhance the spontaneity
in economic growth, therefore reducing the economy's reliance on
government spending.
The central bank said a prudent monetary policy, which it adopted
after 1997's Asian financial crisis, will continue this year to
support economic growth and a market-orientated interest rate
reform will proceed "steadily" to optimize the allocation of
financial resources.
The current level of the renminbi's exchange rate, which some
Western economists have complained is too low, as well as the
mechanism through which it is determined, still fits China's
national conditions, it said.
The loose global monetary environment in 2001 and last year, which
witnessed widespread interest rate cuts, failed to lessen global
deflationary pressure, it noted. But China, which some Western
economists accused of fuelling the global price downtrend, was not
to blame.
China's real commodity exports, excluding processing trade,
accounted for a tiny 2 per cent of global exports last year, which
were "not enough to exert a determining influence on global
prices," the report said.
(China Daily February 21, 2002)