DAVOS, Switzerland (Reuters) – Somewhat slower growth will allow a reforming Chinese economy to become more stable and should be good news, the head of China’s central bank said on Wednesday, after the country announced its lowest expansion rate in 24 years.
Zhou Xiaochuan, governor of the People’s Bank of China, said the People’s Congress, the parliament, would discuss a lower growth target at its annual session in March. He declined to give a figure, saying it was for the congress to set.
China announced on Tuesday that growth slowed to 7.4 per cent in 2014 – the lowest since 1990 – as property prices cooled, but the figure was slightly higher than markets had expected.
“If China’s growth slows down a bit but economy becomes more sustainable, that’s good news,” Zhou told a global business meeting at the World Economic Forum in Davos, Switzerland.
China’s previous export-driven expansion drive had been unsustainable and it was right for the government to focus on structural reforms to make the economy more sustainable, including a transition to renewable energy sources, he said.
“If the government pursues too high a growth rate, it will postpone necessary structural reform,” Zhou said. “What people care more about now is structural reform. We’d like to sacrifice a little bit lower growth rate as long as we have structural reform.”
Chinese companies and local governments are struggling under heavy debt burdens, keeping pressure on Beijing to take aggressive steps to avoid a sharper downturn.
But Zhou said the central bank should keep monetary policy stable because there was no serious nationwide real estate problem despite falling prices in some cities.
A cyclical adjustment was under way in the property market, which could be addressed in part by macroprudential policies such as loan-to-value ratios rather than by monetary policy.
“For the central bank, we think basically to keep monetary policy stable because this is not a nationwide serious problem,” Zhou said.
“Generally, if the average indicator of the Chinese economy is OK, the way for the central bank to have a specific policy targeted to the real estate market is difficult,” he said.
Zhou said Chinese markets were nervous because of the fall in oil and commodity prices and he urged stock market investors to focus on companies’ fundamentals to avoid any potential price bubble.
Cheaper oil and gas prices would give momentum to China’s economic growth and employment, because of its dependence on imported fuel, but they could discourage switching to cleaner, renewable energy sources, he cautioned.
“We worry a little bit that the price signal may give disincentive for new energy types to develop, and could reduce investment in new non-fossil energy,” Zhou said.
Uncertainty about energy prices could delay investment in solar, wind and other renewable power source, he added.