China Central Bank Governor Says 6.5% Growth Target ‘Within Reach’

(Beijing) — China’s target to achieve a growth rate of about 6.5% this year is “within reach” and financial risks in the country are “well under control,” People’s Bank of China Governor Zhou Xiaochuan said.

Strong growth momentum has continued in the first quarter of the year, with key economic indicators including investment, trade, consumption and employment all posting stable expansion, Zhou said at a meeting of the International Monetary Fund (IMF) on Saturday in Washington.

Premier Li Keqiang last month announced that China has set this year’s target for growth of gross domestic product (GDP) at “around 6.5%, or higher if possible in practice.” That marked the least ambitious goal in 25 years.

In the January-March period, year-on-year GDP growth accelerated to 6.9% on the heels of higher investment, recovered exports and a continued real-estate boom after an increase of 6.8% in the last three months of 2016 that was the first pickup in two years, figures published by the National Bureau of Statistics (NBS) showed last week.

Following the data release, the IMF revised upward its forecast for China’s economic growth this year to 6.6% in its quarterly World Economic Outlook report, compared with its January prediction of 6.5% and October estimate of 6.2%.

But the IMF described China’s dependence on fast-expanding credit as “dangerous,” and warned that slow progress in tackling the problem and the corporate debt overhang eventually “raises the risk of a disruptive adjustment” in the medium term.

Zhou, however, downplayed the concerns, assuring investors that industrial enterprises have seen profits improve and debt levels decline. He said the banking sector’s capital and provisions are adequate, and its nonperforming loans are low.

“The corporate and the financial sectors are broadly resilient, with risks well under control,” he said in the speech. “China is fully confident in preventing and eliminating systemic risks.”

The government will keep monetary policy prudent and neutral, and will ensure liquidity is maintained “broadly stable,” he said.

Profits of China’s industrial enterprises soared 31.5% year-on-year in the first two months of 2017, picking up from a gain of 8.5% in 2016, NBS data showed.

But some analysts have cautioned that the improvement has largely been driven by a rebound in commodity prices and has mainly benefited upstream industries, with little spill-over onto downstream sectors. They added that the inflating effects are expected to wane in the coming quarter as prices of some goods have already started falling.

The nonperforming loan ratio at commercial banks stood at 1.74% as of the end of March, down 0.01 of a percentage point from a year ago, while the lenders’ loan-loss provisions were at 178.8% of their bad loans, up from 176.4% at the end of December, according to figures from the China Banking Regulatory Commission (CBRC), the industry watchdog.

However, the accuracy of the size of bad loans could be called into question, as some banks were found to have reported less on their problematic lending. The CBRC in the first quarter fined dozens of banking institutions a total of about $28 million for violations such as hiding bad loans.

Zhou said the PBOC will further improve its macro prudential policy framework to “address potential systematic risks.”

The central bank adopted the Macro Prudential Assessment system, a points-based testing mechanism, at the start of 2016 to gauge risks in bank-credit exposure. This year, the system began monitoring banks’ off-balance-sheet wealth management plans, strengthening supervision in an area that has long been regarded as the most opaque and risky.

Contact reporter Fran Wang (fangwang@caixin.com)