BEIJING: The economic experts have expressed grave concerns about new structural adjustments which are going to result in liquidity squeeze at 6.9% economic growth rate.
“The nation is paying a price for economic structural adjustment, reflected in commercial banks’ surging nonperforming loans,” Jing Sing, a Beijing based economic expert said. To avert further risks, the People’s Bank of China may take measures to control the expansion of debt.
Difficulties are increasing for the central bank to manage liquidity. The traditional measure ofincreasing money supply based on the position for foreign exchange purchases is no longerefficient, and the uncertainty of capital flows is increasing.
Amid slower economic growth, a rise of commercial banks’ NPLs will lead to liquidityproblems, which will cause volatility and influence interbank interest rates.
However, it is unlikely that we will see a systemic liquidity crisis, although there may be ashort-term liquidity squeeze.
Macroeconomic policies have different target periods.
For the short term, they focus on maintaining moderate liquidity. In the medium term, thepolicy emphasis will be on fiscal and financial reform. And in the long term, the target will beto reshape the sustainable growth model.
The policies should avoid aggressive stimulus, accelerate the deleveraging process and drivestructural reforms.
Monetary policy fine-tuning is likely according to changes in the economic situation, with apreference for maintaining reasonable market liquidity and providing a neutral financialenvironment for industrial upgrading.
The reforms of the exchange rate and interest rate systems will continue and encourage faircompetition in the financial markets.
China’s economic growth rate may remain stable at a relatively lower level in 2015, between6.9 and 7.1 percent, restricted by sluggish demand.
Fixed-asset investment is likely to slow further, restrained by the gloomy real estate marketand a moderation in local governments’ drive to invest. Consumption growth will becomemore stable.
Upside risks will mainly come from the growth in external demand, but a trade surplus willresult because of a decline in imports rather than growth in exports.
The biggest medium-term uncertainty for the economy is deflation risk.
