No basis for continued depreciation of the yuan, says Chinese Premier Li Keqiang

31 Aug 2015 | Author: | No comments yet »

3 reasons markets lost faith in China’s economy, at a glance.

For decades, Chinese economic policymakers have drawn praise for keeping their economy growing strongly through turbulence, such as the Asian financial crisis of 1997-1998 and the worldwide financial tumult of 2008.

Beijing: China’s economy is growing at a “reasonable” pace and, despite growing pressure, the government can handle well the risks the country faces, Chinese Premier Li Keqiang said. Li said international market instability “has increased the uncertainties around the global economic recovery, and the impact on China’s financial market and imports and exports has also deepened, with the economy facing new pressure.” He defended China’s efforts to steer through a volatile period since mid-June, when China’s stock market plunged. State-run media talked up stocks, and individual investors responded by buying shares and igniting a 150 percent run-up in the Shanghai Composite stock index in the year through June. Li said recent cuts in the reserve requirement ratio (RRR), interest rates, taxes and fees and measures aimed at stabilizing the market were already paying off.

The government sought futilely to intervene, suspending trading in hundreds of companies and banning big investors from selling stakes for six months. The intervention undermined Beijing’s pledge to give market forces a bigger say in the economy and left policymakers looking clumsy and ineffectual.

Li said China would “enact more targeted and responsive macro-regulation to offset downward economic pressure, more robust reform and innovation efforts to energize the market, and more effective delivery to secure the positive momentum for growth”. He said China needed to encourage new forms of investment and financing by local governments and businesses, such as local debt swaps and corporate bonds. “China has great potential for further development and is well capable of effectively managing risks and keeping them under control,” Li said. Since the devaluation, China has intervened to keep the yuan from falling too fast, confusing markets and renewing doubts about Beijing’s commitment to market forces.

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