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Officials: All options open to beat slump

By Jing Ji (China Daily)
Updated: 2009-03-07 08:22

Will the yuan appreciate or fall against the dollar? Is China's record deficit too heavy a burden on the government? Is the US$586 billion stimulus program really working?

Three top officials - Zhang Ping, minister of the National Development and Reform Commission (NDRC), Xie Xuren, minister of finance, and Zhou Xiaochuan, governor of the People's Bank of China, the central bank, met the press in Beijing on Friday to answer these and other questions.

People's Bank of China Governor Zhou Xiaochuan (left), National Development and Reform Commission chief Zhang Ping (center) and Minister of Finance Xie Xuren meet the press in the Great Hall of the People in Beijing on Friday on the sidelines of the annual session of the National People's Congress. Xu Jingxing [China Daily]

When asked about the yuan's trajectory against the dollar, Zhou said what China would like to see is "basically a stable" yuan.

However, he did not specify whether the currency would be allowed to go up or depreciate against the dollar.

"We have several contingency plans (that are designed to meet different market scenarios)," Zhou said.

There is widespread speculation that the country may resort to yuan depreciation to help its exporters beat slumping growth.

Full coverage:  NPC and CPPCC 2009 Related readings:  Press conference details nation's economic policies  More press conferences on economy to be held: spokesman  CPPCC press conference on economical growth  Real economy major victim of financial crisis: top planner  Incentives will lift country's economy

The uncertainty with respect to the yuan, however, may be attributed to uncertainties in developed economies, Zhou said. As such, China cannot afford a fixed stance on its currency, he said.

It is the economies where the financial crisis originated that "should be asked to explain what their real situation is", he said.

Most Beijing-based analysts said there was little need for a major appreciation in the yuan now. They said the currency would strengthen against the greenback in the mid- to long term.

People should not worry about a marked depreciation in the yuan either, said Tan Yaling, an economist with Bank of China. "China's economic fundamentals have not changed, and that does not allow for conditions for a depreciation."

Ding Zhijie, an economist at the University of International Business and Economics, said the yuan might face greater depreciation pressure in the second and third quarter if the global financial crisis worsens.

But even that depreciation would be relatively mild and temporary, he said. "A possible scenario would be a depreciation of 1-2 percent against the dollar."

On domestic credit flow, Zhou said Beijing's target of disbursing 5 trillion yuan ($731 billion) in new loans this year was only a "guiding, not a binding" figure.

Enterprise bonds

Zhang Ping said China would increase its issuance of enterprise bonds to fund the stimulus package announced last November.

Enterprise bonds often refer to bonds issued by State-owned enterprises and must be approved by the NDRC, China's top economic planner. They are unlike corporate bonds issued by listed companies, which are under the purview of the China Securities Regulatory Commission.

Altogether, 45 enterprise bonds worth more than 130 billion yuan have been issued since the fourth quarter of last year, Zhang said.

In addition, more than 50 enterprises have applied for bond issuance worth 100 billion yuan and are pending approval, he said.

The country will also grant policy-related bank loans with a relatively longer maturity and low interest rates to fund some stimulus-backed projects, said Zhang.

The NDRC, together with the Ministry of Finance, the central bank and the China Banking Regulatory Commission have worked out a specific plan for such loans, he said.

"The issue of enterprise bonds will act as a supplement for large companies to raise funds. It is also expected to help develop China's bond market," Zhuang Jian, a senior economist at the Asian Development Bank, said.

The total volume of the bond market reached 15.11 trillion yuan by the end of last year, up 22.5 percent from 2007. Zhuang said the bond market would see continual growth this year due to the effect of the stimulus package.

Zhang said there are no plans for more stimulus spending this year and the government is watching closely to determine whether it needs to expand its huge stimulus effort.

"It really depends on the changing situation to determine whether we need additional investment," Zhang said.

Debt safe

Finance Minister Xie Xuren said China's outstanding debt level, expected to account for 20 percent of its GDP by the end of this year, is a safe ratio.

China has budgeted for a fiscal deficit of 950 billion yuan this year, 570 billion more than the previous year, Premier Wen Jiabao announced in his government work report on Thursday.

The record deficit will push the country's total outstanding debt to 6.27 trillion yuan, or 20 percent of the GDP, Xie said.

"Such a level is bearable considering our comprehensive national strength and is generally sound and safe," Xie said.

China's outstanding debt in 2008 accounted for 17.7 percent of its GDP.