Economy

Markets

Industries

Insights

Reports

Events

Central bank dismisses fears over export collapse

(Xinhua)
Updated: 2008-06-03 22:41

BEIJING - China's central bank on Tuesday rejected as "exaggeration" warnings that the nation's exports are set to drop sharply, leading to an economic hard landing.

"An analysis of the impacts of weaker export growth should be objective and allow no excessive exaggeration," the Institute of Finance Research under the People's Bank of China (PBOC) said in a report.

Some analysts are calling for easing controls to reduce the risk of hard landing, as weaker export growth drove the nation's trade surplus to shrink 8.4 percent to $58 billion in the first four months of the year.

"A drastic decline in export growth will not come in the short term, with the resilience of the US economy, the rapid growth in exports to emerging markets, and the productivity increase offsetting labor cost rises," said the report.

The devastating earthquake on May 12 had added uncertainties to the economy, but its regional and short-term impact would not change the economic fundamentals, the report said.

"The quake had a limited impact on the nation's overall industrial production and farm produce supply," it said.

"The quake, however, will drive up fixed asset investment and add  inflationary pressures in the short term."

The government has earmarked 70 billion yuan ($10.08 billion) for post-quake construction this year, and further funding is promised.

"Large infrastructure construction will increase demand for cement, steel and other building materials, and the impact on their prices should not be ignored," it said.

The economy had slowed because of the US credit crunch, a spate of tightening measures and natural disasters, reducing the risk of economic overheating, according to the report.

The macro-economic climate index had been in the "green" (normal) zone for four consecutive months as of April, after being on the verge of overheating from September to December.

Consumer prices were high, making the fight against inflation arduous, the report said. "The pressures for broad-based price rises are still the biggest risk for the macro-economy."

The consumer price index (CPI) rose 8.2 percent in the first four months from a year earlier, the highest in 12 years and above the government target of 4.8 percent for 2008.

The high inflation came amid high commodities prices, normal rises of China's once-low resources and labor costs and economic structural imbalances.

Inflationary pressure would be heavy for the whole year, as prices of commodities and food had further room to rise, and there would be increasing demand for credit in the post-quake period, the report noted.

"The government should stick to tightening policies to prevent excessive credit growth, and thus provide a relatively tight environment to constrain total demand and stabilize prices," it said.

It also suggested the authorities pursue pricing reform for resources in the medium and long-term to ease price pressures caused by the extensive growth mode and excessive consumption of resources.