China to pump up domestic demand to sustain economic growth

China will boost domestic demand to sustain the nation's ``fast and stable'' economic growth, central bank Deputy Governor Yi Gang said.

``Despite the negative shocks of the financial crisis, China will accelerate transformation of the growth model, promote domestic demand -- especially household consumption -- and maintain fast and stable growth,'' Yi said in a statement today in Washington, where he is attending the annual meetings of the International Monetary Fund and the World Bank.

China this month cut interest rates for a second time this year amid concerns that the global slowdown and financial turmoil would derail the world's fastest-growing major economy. Expansion slowed for a fourth straight quarter in the three months ended June 30 as exports cooled.

``For a country with a population of 1.3 billion, its greatest global contribution is to sustain fast and stable economic development,'' Yi said.

In addition to lowering borrowing costs, the People's Bank of China has lowered the proportion of deposits lenders must set aside as reserves, trimmed the pace of currency gains and increased banks' loan quotas to support businesses.

The one-year lending rate stands at 6.93%, and the equivalent for the deposit rate is at 3.87%. China's currency, the yuan, has appreciated about 6.8% against the US dollar this year.

China's economy, the world's fourth largest, grew 10.1% in second quarter from a year earlier. Policy makers have shifted their focus from taming inflation to sustaining economic expansion as slower growth in exports and food prices threaten corporate profits, jobs and social stability in the world's most populous nation.

Slowing exports

Exports rose 21.1% in August from a year earlier, after climbing 26.9% in July. Industrial production climbed 12.8%, the slowest pace in six years.

``With the weakening of aggregate demand, corporate profits may be eroded and competitiveness weakened, in effect, moderating imbalances on the external account,'' Yi said.

Still, rising domestic consumption may shield China from weaker exports. Retail sales grew 23.2% in August from a year earlier. Fixed-asset investment in Chinese urban areas jumped 27.4% in the first eight months.

China's benchmark CSI 300 Index of shares has fallen 64% this year. House prices in the country's 70 major cities gained 5.3% in August from a year earlier, the smallest in 18 months.

``China is willing to strengthen its cooperation with other countries through such joint efforts,'' Yi said. ``We hope global financial stability can be safeguarded.''

China's foreign-exchange reserves, the world's largest, rose to a record $US1.81 trillion ($2.8 trillion) at the end of June. The country last year set up a $US200 billion sovereign wealth fund, China Investment Corp., to increase returns on those assets.

The Chinese ``market remains liquid and the financial system is broadly sound,'' Yi said.

Bloomberg News