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China growth slows but Beijing remains optimistic

China is preparing for a further slowdown in the growth of its economy. The official “objective” for 2015 will be announced by the Prime Minister, Li Keqiang, at the annual session of the National People’s Congress, the Parliament with all symbolic functions, which began Thursday, March 5th.

The ambition to achieve 7.5% growth in gross domestic product (GDP), which was posted for 2014, was not held, rare in Chinese politics – the growth was 7.4% its weakest pace since 1990 – most observers expect that the head of the Chinese Communist Party (CCP) fixed this time a more modest course; probably around 7%, a figure that the Party Secretary Xi Jinping, now presents as the “new figure” for the country.

The tone was also given from Monday, March 2nd, with the publication of a report by a research institute working for the government, the State Information Center, which indicates that growth is expected to be 7% on a year in the first quarter. “The growth continues to face significant downward pressure in a context of structural adjustment,” said the institute in the official newspaper China Securities News.

At this point, the most recent statistics, however, provide somewhat conflicting signals. The PMI purchasing managers released Monday by HSBC showed that Chinese manufacturing activity rebounded in February, while the index official PMI, released Sunday by the Chinese government, indicates that there has been a contraction for the second consecutive month, of activity of Chinese factories, despite a slight improvement compared to January.

International demand “weakened again”

Annabel Fiddes, an economist at Markit, the economic data firm who compiled the index for HSBC, however, stressed that “the further decline in export orders suggests that international demand weakened further.” It also noted that “manufacturing companies continue to cut their workforce, while the decline in prices reflects the persistence of deflationary pressures.

In the opinion of analysts, given the continuing difficulties in the manufacturing sector, the Chinese central bank (PBOC), led by the Communist Party, is expected to continue to increase its monetary easing.

This is what it did Saturday, February 28th: it reduced its rate on the loan for a year, increasing to 5.35%, against 5.6% previously, while the remuneration of deposits over a year falls from 2.75% to 2.5%.

This follows a similar adjustment in November 2014, and a reduction on February 4th, the reserve ratios imposed on banks. It illustrates the willingness of Beijing to curb the slowdown in the second largest economy in the world.

Especially as the inflation rate is particularly low (prices rose only 0.8% in January), while the real estate market continues to idle, stressing the need for new impetus.

This new phase in monetary easing was expected because the government of the People’s Republic, while discarding the hypothesis of a high intensity stimulus plan, regularly reiterated his determination not to let the growth fall down furthermore.

On Monday, the RMB fell to its lowest level against the dollar since October 2012. On the spot market, the RMB started at 6.2730 per dollar. The PBOC had set Monday before the opening at 6.1513 to the dollar the central rate of the RMB, its lowest level since November 6th, 2014.

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