China central bank holds line on growth forecast but sees more pain to come

Wed Jun 8, 2016 4:56am EDT
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SHANGHAI (Reuters) - China's central bank slashed its forecast for exports on Wednesday, predicting a second straight annual fall in shipments, but said the economy will still grow 6.8 percent this year.

The People's Bank of China (PBOC) also warned in its mid-year work report that the government's push to reduce debt levels and overcapacity could increase bond default risks and make it more difficult for companies to raise funds.

And, ahead of a meeting of the U.S. Federal Reserve's policymaking board next week, it said the pace of U.S interest rate rises would affect global capital flows and emerging market currencies, but it did not mention the yuan.

"Since the beginning of this year, the global and domestic economic environment has experienced a number of changes," the PBOC said in the report.

"Reflecting these recent developments, we revised our China macroeconomic forecasts for 2016. Compared with our published forecasts in December last year, we maintain our baseline projection of 2016 real GDP growth at 6.8 percent."

The report was released shortly after monthly data showed China's exports fell an annual 4.1 percent in May, more than expected and the 10th decline in the past 12 months.

Imports were more encouraging, declining only marginally and much less than expected, pointing to improving domestic demand and adding to views that the economy may be slowly stabilising. Preliminary commodity trade data showed sharp rises in imports of copper and iron ores.

However, some economists cautioned that imports from Hong Kong may have once again been inflated by fake trade invoicing to disguise speculation on the yuan, which came under renewed depreciation pressure last month as the U.S. dollar surged.

Chinese customs data showed the mainland's imports from Hong Kong jumped 242.6 percent in May from a year earlier, while its exports to the territory fell 7 percent.   Continued...

A woman rides past the headquarters of the People's Bank of China (PBOC), the central bank, in Beijing, April 3, 2014. REUTERS/Petar Kujundzic