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IMF: Soft landing 'possible' (2)

(China Daily)

11:04, July 26, 2012

"The deep impact of the global financial crisis is continuing to unfold", which is having a great effect on "many companies", said Zhu Hongren, a spokesman for the ministry.

The mainland's benchmark stock index - the Shanghai Composite Index - retreated 0.4 percent to 2,136.15 at the close on Wednesday, the lowest since March 2009, showing that investors remain skeptical about how strong the recovery will be.

The index, which tracks the biggest companies in China, has fallen 13 percent from this year's high point on March 2.

Lu Zhengwei, chief economist with Industrial Bank, predicted on Wednesday that the consumer price index for July may further slump to 1.7 percent from June's 2.2 percent, while the producer price index is likely to decrease 2.5 percent compared with a 2.1 percent drop in June, suggesting that the corporate environment may be worse.

As CPI is expected to slow to less than 2 percent in the third quarter, there will be more room for monetary policy easing, a research note from JPMorgan Chase & Co said on Tuesday. It expected one more interest rate cut and three RRR cuts in the second half.

Besides, further fiscal stimulus can strongly support growth through tax cuts and more infrastructure investment projects, the bank said.

The uncertain global economic environment and weak overseas demand have increased selling pressure on the Chinese currency over the past months.

The yuan hit its lowest level against the dollar this year on Tuesday after falling nearly 1 percent to the bottom of its daily trading band.

"The renminbi is assessed to be moderately undervalued, reflecting a reassessment of the underlying current account, slower international reserves accumulation, and past real effective exchange rate appreciation," the IMF report said.

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