Update: China state planner optimistic on economy, watching volatile stock market

JUL 28, 20152:21 PM

[BEIJING] China's top economic planner said on Tuesday that it was optimistic on the outlook for the economy in the second half of 2015, but was paying close attention to volatility in the country's stock markets.

Improved performance in the first half of the year boded well for the economy but and growth momentum was still "insufficient", Li Pumin, secretary general of the National Development and Reform Commission (NDRC), told a news conference. "Some firms still face operational difficulties while there is relatively big pressure on fiscal revenues (growth) and the job market," said Mr Li. "There is also an outstanding issue that the flow of capital does not translate into the real economy smoothly." Beijing is facing an uphill battle to channel money into the real economy but banks are reluctant to lend as the slowing economy fuels a rise in bad loans and they tend to charge higher lending rates as credit risks grow.

For the first six months, China reported a growth rate of 7 per cent, in line with Beijing's full-year target. But a stock market plunge since June has fueled concerns about the health of the economy and risks to the financial system.

Mr Li said policymakers were paying close attention to fluctuations in China's stock markets and described the recent activity as "abnormal". "The fundamentals of China's economy are stabilising and turning better. So we have the foundation and necessary means to keep the healthy development of capital market including the stock market," Mr Li said.

Since early June, China's main indexes have tumbled by a third in less than a month, before rebounding by a quarter after Beijing stepped in with a flurry of unprecedented support measures to stave off a full-blown crash.

But stocks suffered their biggest one-day fall since 2007 on Monday and gyrated wildly again on Tuesday despite a fresh pledge by regulators to lend further support to the market.

Asked by the inflation outlook, Mr Li said he expected consumer prices to edge up mildly in the second half of 2015, thanks to the stabilising of pork prices.

Speaking at the same briefing, Gao Gao, vice-director of the integration department of the NDRC, said that he was not optimistic on the outlook for external demand.

Mr Gao reiterated that China will keep policy stable in the second half and accelerate construction of key development and infrastructure projects to lift the economy.

China's central bank has cut interest rates three times this year, in a bid to support an economy headed for its poorest performance in a quarter of a century. Many economists expect further policy easing in coming months.

REUTERS