China's Central Bank Sees Signs of Recovery

China sees signs of the economy recovering and must be ready to act sooner rather than later to revive growth, the central bank governor said on Friday.

"The policies (to date) have achieved significant results," Zhou Xiaochuan told a news conference on the sidelines of the National People's Congress, the largely ceremonial parliament.

"We are also seeing that the economic figures are stabilising and recovering, which demonstrates that the policies have begun to show an impact.

"In particular, we have to prevent being too slow-handed or light-handed in responding. We must err on the side of being quick and decisive."

Zhou's comments came a day after Premier Wen Jiabao said China would ramp up deficit spending this year to hit its all-important 8 percent growth target.

That level is widely thought to be the minimum needed to hold down China's jobless rate, a key goal for Beijing which fears growing ranks of unemployed could fuel social unrest.

Earlier on Friday, the People's Bank of China reaffirmed its commitment to keeping the yuan's exchange rate basically steady and said it would let market forces play a greater role in determining interest rates.

The central bank said in a statement it was also considering allowing commercial banks to charge less for loans.

Pledging to maintain domestic financial stability, the PBOC said it would strengthen the monitoring and assessment of China's financial sector and draw lessons from the way other countries are handling the current financial crisis.

Zhou added that China had learned the lesson from other countries that moving too late can make the process of restoring confidence drag on.

He added that China had room to adjust policy in the future and needed to act with the medium-term in mind as well as the short-term.

The central bank said in a statement it would pay close attention to financial market developments with a view to effectively controlling the risks involved in managing China's $2 trillion in foreign exchange reserves.

Recovery Trend?

Recent data has suggested the world's third-largest economy may be on the cusp of a recovery.

New domestic-currency bank loans shot up to a record 1.6 trillion yuan in January. Liu Mingkang, the top banking regulator, said that they probably exceeded 800 billion yuan in February, still a very high figure.

Two surveys of Chinese manufacturing have also rebounded, with the official purchasing managers' index reaching 49 in February, just shy of a reading of 50, which marks the difference between contraction and expansion.

Output and new orders both returned to mild growth after shrinking for four months, the official PMI report showed. But economists cautioned it was too early to tell if the broader economy was improving or if the pick-up in demand could be sustained.

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The central bank's health check on the economy came as the 21st Century Business Herald reported on Friday that China's exports and imports both dropped by more than 20 percent in February.

It cited an unidentified official who calculated that, based on such percentage falls, China's trade surplus for the month may have fallen to $7 billion. That would be sharply lower than the $39.1 billion surplus in January.

If accurate, those figures would mark an acceleration in the fall in China's exports and the fourth straight monthly decline for both exports and imports.

Exports fell 17.5 percent and imports fell 43.1 percent in January.

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