Zhou Says China Seeks Policy `Continuity, Stability'

By Zhao Yidi and Zhang Dingmin

July 29 (Bloomberg) -- China's central bank governor Zhou Xiaochuan underscored ``continuity and stability'' in monetary policy after economists said they detected a bigger emphasis on supporting growth as the economy slows.

July 25 and 27 statements by the Communist Party's political bureau and the central bank didn't use the term ``tight monetary policy,'' featured in previous government statements. JPMorgan Chase & Co. economist Frank Gong and Lehman Brothers' Sun Mingchun saw a shift to a more pro-growth policy.

``The central bank mentioned policy continuity and stability,'' Zhou said late yesterday in the western city of Xi'an when asked about the omission. Zhou was speaking after a meeting of East Asia-Pacific central bankers

Weakening export demand because of the U.S. housing slump and an international credit squeeze has stoked concern that growth may slump in the world's fourth-biggest economy, costing jobs and leading to bad loans and sinking profits. Government options to stimulate the economy and protect exporters include loosening bank lending quotas, boosting government spending and restraining gains by the yuan.

Zhou said people should read the statement after the central bank's second-quarter monetary-policy meeting ``accurately and comprehensively.''

China is trying to damp inflation that soared to a 12-year high of 8.7 percent in February. Last month's rate was 7.1 percent.

Policy `Fine-Tuning'

Ting Lu, an economist at Merrill Lynch & Co. in Hong Kong, said yesterday that China was ``fine-tuning'' economic policy.

Donald Straszheim, vice chairman of Roth Capital Partners, a U.S. investment bank specializing in emerging markets, said it was the biggest policy shift in five years.

The government will slow the pace of currency gains to protect exporters, keep interest rates unchanged and maintain the reserve requirement for banks at a record 17.5 percent of deposits, Los Angeles-based Straszheim said.

China's economy grew at the slowest pace since 2005 in the second quarter. Gross domestic product rose 10.1 percent from a year earlier, down from 10.6 percent in the first quarter, as exports weakened and the government curbed lending.

The Politburo said last week that maintaining growth and fighting inflation were the top priorities for the second half of 2008. It said the nation aimed for ``steady and relatively fast'' growth.

The central bank's statement was similar. In its previous quarterly statement, the People's Bank of China said it was sticking with a ``tight'' monetary policy.

To contact the reporters of this story: Zhao Yidi in Xi'an on yzhao7@bloomberg.net