China affirms prudent monetary policy, sees 8.4 percent first quarter growth

China will stick to a prudent monetary policy and proactive fiscal policy this year to achieve steady and relatively fast economic growth, a senior official with the country's top economic planner said on Tuesday. Zhang Xiaoqiang, a vice head of the National Development and Reform Commission, said China's economy may have grown 8.4 percent in the first quarter from the year-earlier period, citing initial figures from a "related research agency".
"It will take great effort to achieve the annual target for economic growth by adopting a prudent monetary policy and proactive fiscal policy this year," Zhang said in a speech at the Boao Forum on the tropical Chinese island of Hainan. China has cut its annual growth target to 7.5 percent this year, a pace the government hopes will give it room to push structural reforms.
The Q1 figure Zhang cited was broadly in line with estimates of private economists. The National Bureau of Statistics is due to release the first-quarter economic growth data on April 13. China's Premier Wen Jiabao, on a three-day tour of south China that ended on Tuesday, said it was important to "sufficiently recognise favourable conditions" in the economy. "China's current overall economic situation is good. Although a few main economic indicators are falling, they remain at a reasonable level," he said, according to a state media.
Ting Lu, China economist at Bank of America/Merrill Lynch in Hong Kong, expects China's annual GDP growth for the first quarter to be 8.3-8.4 percent, easing from 8.9 percent the previous quarter - the fifth consecutive quarter of slowdown. "I believe growth will hit the bottom in the first quarter, but a sharp rebound in the following quarters is unlikely," Lu told Reuters on the sidelines of the Boao forum.
The weaker growth was caused by the impact of Europe's debt crisis, which hurt China's exports, and the lag effect of the central bank's policy tightening, he added. Lu believes China's economy is on track to grow 8.6 percent in 2012, as the central bank is on track to ease policy although it still maintains a prudent stance. Analysts widely expect the central bank to continue to cut the amount of cash that commercial lenders must hold as reserves to crank up credit expansion, but the chances of a near-term cut in benchmark interest rates remain limited.
Zhang also said China would place greater emphasis on expanding domestic consumption. China's big factories were surprisingly busy in March as a stream of new orders lifted activity to an 11-month high, but credit-constrained smaller manufacturers struggled, suggesting the economy is still losing steam.
China may also boost co-operation with other Asian countries through various means, such as encouraging domestic firms to make more investments in the region, Zhang added. Chinese central bank chief Zhou Xiaochuan said that Beijing may loosen overseas investment rules for private investors, less than a week after the government gave the go-ahead for pilot financial reforms in a coastal city.