China’s Economy Shows Positive Signs, Su Ning Says

By Bloomberg News

June 23 (Bloomberg) -- People’s Bank of China Vice Governor Su Ning said the world’s third-biggest economy is showing positive signs and the government is staying confident.

“We will have firm confidence and fight through the difficulties,” Su said at a financial conference in Beijing today. While the overall situation is stabilizing, the economy’s fundamentals are still not solid, Su said.

Chinese officials are striking a tone of cautious optimism as lending and investment surge and manufacturing expands, helping to drive a recovery against the backdrop of a global recession. The economy is in a “critical” phase as the government’s 4 trillion yuan ($585 billion) stimulus plan counters a collapse in trade, according to a June 21 statement by Premier Wen Jiabao.

“The economy is in better shape than the officials are indicating,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “They’ve already bedded down the recovery,” he said, citing a flood of money into the financial system, investment gains and increases in the official manufacturing index.

The Shanghai Composite Index fell 1.4 percent as of 11:30 a.m. local time after oil and copper declined, stoking concern that a global recovery will falter..

Exports, Unemployment

“Pushed by a series of policies, our economic conditions have shown some positive changes,” Su said.

The economy may grow almost 8 percent in the three months ending June 30 from a year earlier, up from 6.1 percent in the first quarter, statistics bureau economist Guo Tongxin estimated on the agency’s Web site today. Gross domestic product may climb more than 2 percent quarter-on-quarter, Guo said. The economist’s report was a personal view, the bureau said.

After bottoming out in the fourth quarter, the economy still faces falling exports, increasing company losses and industrial overcapacity, Guo said.

TCL Corp., the nation’s biggest maker of consumer electronics, posted a 97 percent plunge in first-quarter profit as exports of televisions and mobile phones fell.

Officials won’t play up the economy’s strength for fear of encouraging trading partners to push for more appreciation of the yuan, Maguire said. The central bank halted the currency’s gains against the dollar in July last year, helping exporters after the 21 percent increase since the end of a fixed exchange rate in 2005.

World Bank Forecast

China’s government may also be waiting for signs of a “firmer recovery” in western nations’ consumption, the economist said.

The World Bank raised last week its 2009 growth forecast for China and advised policy makers to delay until 2010 any additional stimulus plan. The economy will expand 7.2 percent from a year earlier, up from a 6.5 percent forecast in March, the Washington-based lender said.

In contrast with China’s prospects, the World Bank cut yesterday its forecast for the world economy, predicting a 2.9 percent contraction this year.

The surge in new loans, triggered by the central bank scrapping lending quotas and cutting interest rates in the final four months of last year, has continued this month, according to a report in the Shanghai Securities News yesterday.

Banks are set to lend more in June than in May, the newspaper said, citing unidentified sources. Last month, new loans more than doubled from a year earlier.

--Zhao Yidi, Paul Panckhurst, Irene Shen, John Liu. Editors: Paul Panckhurst, Victoria Batchelor.

To contact the Bloomberg News staff for this story: Yidi Zhao in Beijing at yzhao7@bloomberg.net