Business / Economy

PBOC warns periodic slowdown of potential growth

( Updated: 2014-05-07 16:35

China's potential growth may face "periodic slowdown" due to tightening labor supplies and the shift of its development mode, the country's central bank said in a report released Tuesday.

Potential growth is an economics term that serves as an important leading indicator for monitoring a country's economic growth momentum.

PBOC warns periodic slowdown of potential growth

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Due to changing demographic structure, China is set to see fewer young laborers joining the economy in the coming years. Meanwhile, China's restructuring of its economy targeted at boosting consumption and innovation, may temporarily drag on short-term growth. Both will affect the country's potential growth rate, the People's Bank of China said in its monetary policy report for the first quarter of 2014.

However, the Chinese economy will still run at a stable pace in the future, although it needs to strengthen domestic engines to drive growth, especially when it is confronted with the tasks of reforming and adjusting economic structure, the report said.

The PBOC will continue the prudent monetary policy and finetune it in light of changes, so to stabilize growth, boost reforms, adjust structures, enhance people's welfare and prevent risks, the report said.

The quarterly report indicates that China mulls to adjust its monetary policies, according to Lu Zhengwei, chief economist of Industrial Bank Co.

It explicitly vows to lower the costs of financing, which means that interest rates on the monetary market will not grow significantly before the economy bounces back, Lu said in a research note.

In terms of maintaining the target of broad money supply (M2) growth, the PBOC signals to be more flexible, as it will be tolerant with the M2 growth in case it is within an "acceptable" range and does not surpass 14 percent, Lu said. And that's a hint that the monetary policy has actually been finetuned to a loose fashion, he said.

China witnessed a slew of weak data this year. Its economy grew 7.4 percent year-on-year in the first quarter of 2014, compared to the 7.7 percent growth in the previous quarter, according to the National Bureau of Statistics.

Meanwhile, the country's total foreign trade volume declined 1 percent year-on-year to $965.88 billion in the first three months, according to the General Administration of Customs.

To address downward pressure, China has rolled out a series of measures, including shanty-town renovation, railway construction, cleaner energy projects, tax breaks for small firms, support for rural finance, and a wider opening of the market to private capital.



PBOC warns periodic slowdown of potential growth PBOC warns periodic slowdown of potential growth

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