China economy still needs policy support-PBOC's Zhou

BEIJING, Oct 9 (Reuters) - China will keep monetary policyflexible and pre-emptive to support activity in an economy stillfacing relatively big downward pressure, central bank governorZhou Xiaochuan said.

Sustaining growth and pursuing financial reform was crucialfor the country in the face of stiffening headwinds fromfinancial crisis abroad, the People's Bank of China chief wrotein an article in the latest issue of China Finance magazine,published by the central bank.

"The external environment for our country's economic growthis very grim," Zhou said. "The impact from the internationalfinance crisis is unabated and strengthening, and downwardpressure on the domestic economy remains relatively big."

Given trying circumstances, Zhou said the central bank wouldseek to make policy more effective while providing stability.

"Whilst keeping the continuity and stability in monetarypolicy, the bank will make policy more preemptive, targeted andeffective," he wrote.

China's economic growth limped to its lowest in more thanthree years in the second quarter as exports slowed and domesticdemand struggled to take up the slack. Analysts polled byReuters expect full year growth to be the weakest since 1999 at7.7 percent.

The PBOC has responded by cutting interest rates twice,giving banks more freedom to set borrowing costs by liberalisingrates at the margin and released an estimated 1.2 trillion yuan($190 billion) for lending by lopping 150 basis points fromrequired reserve ratios in three moves since November last year.

Zhou's call for Beijing to pursue financial reforms echoes aview resonating among experts that China risks economic malaise,deepening unrest and ultimately even a political crisis ifincoming leaders do not push through stalled reforms.

China's ruling Communist Party holds a congress next monthto ratify a new leadership line-up in a once-a-decade handoverof power.

(Reporting by Koh Gui Qing; Editing by Nick Edwards)

((guiqing.koh@thomsonreuters.com)(+86 10 6627 1242)(ReutersMessaging: guiqing.koh.reuters.com@reuters.net))


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