October 11, 2014 / 4:00 PM / 5 years ago

China's central bank sees 'very low' risk of hard landing

WASHINGTON (Reuters) - The chance of a hard landing for China’s economy is very small in spite of worries about the country’s real-estate sector, the chief economist of the People’s Bank of China said on Saturday.

A Chinese national flag flutters in front of the headquarters of the People's Bank of China, China's central bank, in central Beijing, May 16, 2014. REUTERS/Petar Kujundzic

Ma Jun told a panel on the sidelines of the IMF and World Bank fall meetings in Washington that the property sector, which accounts for 20 percent of total investment in China, was the main downside risk to the Chinese economy.

However, he said the sector was not the only driver of growth.

“I think the chance of a hard landing is very low,” Ma said.

“Although we worry about some downside risk like the real-estate slowing down and so on, there are also growth engines, including the service sector in general, the Internet in particular ... and healthcare is rising very rapidly.”

Ma said the slowdown in real estate was putting downward pressure on the economy and some further deceleration in the sector was possible given weak public sales.

He said leveraging in the real-estate sector, in state-owned enterprises and in local government financing vehicles was too high and had been rising in the past few years. This was a key reason for the government’s policy of avoiding “excessive stimulus” to the economy.

“At the macro level, I think we need to avoid excessive stimulus, which could increase leveraging significantly in the longer term, even though GDP growth is slowing a bit,” he said.

During a visit to Germany on Friday, Chinese Premier Li Keqiang said he was confident his country’s economy would continue to grow at a “medium-to-high tempo”, forecasting growth of about 7.5 percent this year.

A Reuters poll of 20 economists on Friday, however, showed China’s economy likely grew at its weakest pace in more than five years in the third quarter as the property downturn weighed on demand.

According to the poll, the economy may have expanded 7.3 percent in the third quarter from a year earlier, the weakest reading since the first quarter of 2009, when growth hit 6.6 percent.

China’s Vice Finance Minister Zhu Guangyao said on Friday that China was watching its property market closely but saw no need for any big stimulus for the sector or the rest of the economy,

Zhu said a decline in property prices was not seen as a problem because prices previously had been too high and market forces should be allowed to prevail.

Late last month, China cut mortgage rates and down payment levels for some home buyers for the first time since the 2008 global financial crisis, after home prices fell for a fourth consecutive month in August and new construction activity continued to slump.

Reporting by David Brunnstrom; Editing by Paul Simao

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