China's Economy Has Touched Bottom: Central Bank Adviser

China's economy has touched bottom but further interest rate cuts remain an option, a Chinese central bank adviser said on Wednesday.

Fan Gang, who sits on the Chinese central bank's monetary policy advisory committee, said a 25 percent rise in car sales and accelerating investment in China indicated the economy was showing signs of improvement.

"Before (the economy) bottoms out, it has to bottom. I believe it has bottomed, with the stimulus package and signs of recovery in some industries," Fan said.

Steel and energy consumption were declining at a slower rate and may have turned positive in March, while the transportation sector was warming up, he said.

However, high inventories and overcapacity in some industries remained the biggest short-term challenges for the economy, he said.

Further interest rate cuts remained an option.

"I don't think anybody would rule it out. But it depends on China's liquidity, how China's recovery takes place and how the stimulus package works out," he said. China's sharp economic slowdown meant deflation was an issue in the short term but Fan warned that inflation could resurface and become a problem longer term.

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Deflation was mainly coming from falling oil and commodity prices and that would reduce costs for Chinese companies. However, monetary easing, fiscal stimulus and a global liquidity flood could cause a rebound in oil and commodity prices and create inflationary pressure, he said.

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