Uncertainties for Chinese economy cited

March 12, 2012 at 2:19 AM   |   Comments

BEIJING, March 12 (UPI) -- Slow global recovery and the unstable situation in Europe would be major uncertainties for China's economy this year, its central bank governor said Monday.

Speaking at a news conference in Beijing, Zhou Xiaochuan, governor of the People's Bank of China, said the situation in other major developed countries will also influence China's monetary policy, the official Xinhua news agency reported.

"The world economy is highly globalized with a very active flow of capital worldwide," Zhou said. "All of these factors will have an impact on our monetary policy."

China has maintained a tight monetary policy for several months to prevent the economy from overheating and to fight inflation. Inflation has come down from a three-year high of 6.5 percent last July to 3.2 percent year-on-year as of last month.

In his report to the annual session of Parliament last week, Chinese Premier Wen Jiabao lowered the country's growth target for 2012 to 7.5 percent, the first such change after seven years at 8 percent.

Zhou welcomed as "a good thing" China's trade deficit of $31.48 billion in February and its impact on the yuan. The deficit was the largest in a decade for the world's second-largest economy, accustomed to enjoying huge trade surpluses.

China has been under intense international pressure to allow its currency to appreciate further, as a lower yuan make its exports cheaper.

Zhou said the supply and demand relations in the market are playing an increasing role in deciding the exchange rate of the Chinese currency. The current trade deficit was blamed on import growth far outpacing exports.

Yi Gang, the bank's vice governor, said the trade deficits are a "positive sign" for a more balanced international balance of payment for China.

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