“To have said 6.5% seems like a new line in the sand,” said Tim Condon, head of Asia research at ING Groep NV in Singapore, who formerly worked at the World Bank. “It may well be that they don’t want people to be suckered into a false stock-market rally.”
The comment “reinforces the reform credibility of the new administration,” Condon said.
M2 money supply rose 14% in June, the People’s Bank of China said today in Beijing, down from a 15.8% pace in May, the biggest slowdown in more than two years. A cash squeeze designed to stamp out speculation sent interbank borrowing costs to the highest in at least a decade.
Aggregate financing, the government’s broadest measure of credit, was 1.04 trillion yuan ($169 billion), down from 1.78 trillion yuan in June 2012. New yuan loans were 860.5 billion yuan, accounting for the largest share of aggregate financing since September 2011.
Yi Gang, deputy governor of China’s central bank, said the nation’s money market has recovered to normal levels and the financial market is stable. “At the moment, the tension has been relieved,” Yi said at a separate press briefing in Washington.
The statistics bureau reports second-quarter gross domestic product on July 15, with the median estimate of analysts for a 7.5% increase from last year. First-half expansion was probably below 7.7% “but not too far from it,” Lou said.
Lou ruled out the possibility of widening the budget deficit to stimulate the economy. Instead, policy makers have decided to cut the spending of central government agencies by 5%, and may use the savings to reduce taxes or increase spending on measures to support jobs and growth, he said.
“I want to emphasize that the structural economic adjustment is a painful process,” Lou said. “It won’t be possible to enjoy a comfortable life and a rapid growth rate with the structural adjustment.”
Lou said China shared its plan for further reforms with U.S. officials during the meetings, Lou said.