UPDATE 2-China to work with other c.banks, boost demand

Fri Oct 10, 2008 8:03am EDT

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(Writes through, adds PBOC spokesman comments)

BEIJING Oct 10 (Reuters) - China will work with other central banks to deal with the global financial crisis, and also strengthen efforts to boost domestic demand and safeguard growth, the central bank said on Friday.

China cut interest rates and lowered banks' required reserves on Wednesday as part of a coordinated drive by global central banks to stop a free-fall in world financial markets.

It was Beijing's second rate cut in under a month to help prop up growth, which slowed to 10.1 percent in the second quarter from 11.9 percent in all of 2007 and has been clearly softening further.

"We will strengthen cooperation with international financial institutions and central banks to jointly combat the global financial risks and crisis," Li Chao, spokesman at the People's Bank of China, was quoted by state television as saying.

He added the central bank would adjust its monetary policy to meet global and domestic economic changes.

His remarks came hours after a statement on the central bank's third-quarter monetary policy meeting, which concluded that China was not optimistic about the international outlook. But, with $2 trillion in foreign exchange reserves, the country is sheltered from the worst of the global storm.

The PBOC said the meeting had been dominated by a discussion of the market meltdown and the possible fallout for the world's fourth-largest economy.

"China's national economy is moving in the desired direction in line with macroeconomic control measures, and the financial system is safe and stable," it said in a summary of the meeting posted on its website (www.pbc.gov.cn).

"The overall situation is good."

The PBOC also said China would further improve the coordination of monetary, fiscal, industrial, trade and financial regulatory policies to hasten the restructuring of its economic model, which relies heavily on exports and related investments.

"China will forcefully boost domestic demand and promote a move towards basic balance in its international payments," the statement said.

China's export sector is a big generator of jobs, but critics say the country's huge trade surplus is one of the root causes of the current global crisis.

The proceeds of the surplus, which reached $262 billion in 2007, are largely invested in U.S. bonds, giving America an ample flow of cheap savings that has enabled its consumers and homeowners to indulge in a fateful debt binge.

The summary, as usual, was stronger on generalities than specifics. It said China would pursue flexible and prudent macroeconomic policies to create a favourable monetary environment for stable and fast economic growth.

The statement made no mention of the yuan, whose rise against the dollar has ground to a halt in the past three months as Beijing has sought to give its harried exporters a breathing space.

(Reporting by Zhou Xin and Langi Chiang; Writing by Alan Wheatley; Editing by Andy Bruce)

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