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Central bank warns of tough economic challenges

By Xin Zhiming (chinadaily.com.cn)
Updated: 2009-01-06 21:20

The Chinese economy may face "more severe and complicated" situations as the possibility of a global economic recession is increasing, the People's Bank of China (PBOC), the country's central bank, said Tuesday.

The PBOC also warned that cross-border capital flows may intensify thanks to the ongoing global financial turbulence.

The State Administration of Foreign Exchange also warned Tuesday that the flow of capital across China's borders is facing uncertainties amid the global economic downturn.

In a summary of its annual meeting, the PBOC outlined its monetary and economic policy for the year and vowed to continue to adopt the "moderately relaxed" monetary policy stance to help stabilize economic growth.

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The central bank said it would use interest rate, banks' reserve requirement and open-market operation as tools to ensure adequate liquidity in the economy. It said the economy is facing the danger of a continual downturn after it registered only a 9 percent year-on-year GDP growth in the third quarter of last year, down from 11.9 percent for the whole of 2007.

The bank's research bureau said in a report that China's year-on-year GDP growth may be 9.3 percent in 2008 and would slide to about 8 percent this year.

The central bank said it would try to deliver a 17 percent growth in the broad M2 measure of money supply to ensure that companies have adequate liquidity to combat the dwindling demand as the economy slows.

The PBOC also said it will help "stabilize the stock market" after the domestic A-share market fell nearly 60 percent last year.