China heading for better-balanced, market-oriented reforms: experts

The latest reform agenda, policies implementation concerned, as well as the widening trading band of the Renminbi against U.S. dollar, are all signals that China is heading for a more-balanced and more market-oriented economic reforms, and the process is benefit the whole world, said experts in London Monday.

BENEFIT THE WHOLE WORLD

China's economic slowdown is clearly bad news for some commodity exporters, but the world as a whole should actually benefit from slower but better-balanced growth in China, said Julian Jessop, Chief Global Economist at Capital Economics, in his analysis piece.

The London-based economic research company attributes the recent lackluster economic data of China to seasonal impact of the Chinese New Year, when many factories shut down for the holiday.

Fears that the recent weaker data may be early indication of a "hard landing" are overdone, noted Jessop.

"A slowdown in China driven by a shift away from net exports towards consumption could in principle boost activity elsewhere. Meanwhile, any resulting weakness in commodity prices should be a net positive for the rest of the world," said Jessop.

"A controlled slowdown now should reduce the chances of a crash landing later. This is also the context in which to view the clampdown on shadow banking: better to allow a few defaults now than to see potential bad debts spiral out of control," he said.

Capital Economics expects China's GDP growth at or slightly above 7.5 percent in the first quarter of 2014.

Andrew Colquhoun, senior director of sovereign at Fitch Ratings, also said:" Chinese data are highly seasonal, and first quarter weakness is normal."

Though the January-February data show a slowdown, it was reflecting in part the previous monetary policy tightening, said Colquhoun in a research report.

"We think tighter monetary and credit conditions are aimed at reining in credit growth, particularly 'shadow banking' activities perceived as riskier for financial stability," said Colquhoun.

"The slowdown also coincides with the government signalling a shift towards greater tolerance of corporate defaults by allowing China's first on shore corporate bond default in recent times," added Colquhoun.

Fitch uplifted China's growth forecast from previous 7.0 percent to 7.3 percent for 2014 last week.

MORE FLEXIBILITY OF CURRENCY

The People's Bank of China (PBOC) is signalling that this weekend's widening of the RMB's, or Chinese yuan, trading band means that the currency's days as a "one-way bet" are over, and fundamentals stills point to a stronger currency over the medium term, said Mark Williams, Chief Asia Economist at Capital Economics, in the China Economic Update report.

The PBOC announced Saturday that the RMB's daily trading band against the U.S. dollar will be widened from the current one percent to two percent from Monday. The move will meet market demands and further liberalize the RMB exchange rate, said the central bank in a statement.

"The message from the PBOC in its accompanying statement is that this will allow greater two-way movement of the currency in future. This is of course true in terms of how far the RMB can, in principle, move in any given day. In fact, a two percent band would be enough to contain all but the most extreme moves of any free-floating currency," said Williams in his China Economic Update report.

With China still a strong draw for inward investment of all forms and the current account surplus likely to rebound, market pressures will in most circumstances push the RMB towards the strong-side of its band, said Williams.

Colquhoun also noted:" We view the PBOC's tolerance of greater exchange-rate volatility as a financial-stability measure, aimed at deterring some speculative activity driven by perceptions of inevitable yuan appreciation."

The credit rating company rates the China sovereign "A+" with a stable outlook.