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China's central bank confident on growth outlook

China's economy is on a solid footing, despite weakening global demand, thanks to long-standing drivers of growth such as urbanization, the central bank said.

As a result, the world's fourth-largest economy is likely to retain its momentum in the second half of the year after growing 10.4% in the first six months, the People's Bank of China (PBOC) said.

In its second-quarter monetary report, the PBOC said Chinese exports were likely to weaken as clouds gathered over the world economy.

It warned of growing risks of recession in the euro zone and said the United States was likely to go through a long period of low growth as its economy adjusts to past excesses.

“Currently, the international environment is getting tougher and more complicated. Many economies face a dilemma of having to stabilize prices while safeguarding growth,” the report said.

China, too, still faced many structural problems and quite serious inflationary pressure, a combination that made it very difficult for policy makers to steer the economy.

“But with the combined forces of industrialization, urbanization, internationalization and the upgrading of consumption and of industry, our economy will continue to enjoy robust internal vigor and strength,” the PBOC said.

The report gave few clues as to the direction of policy.

The PBOC restated its long-standing formula that the yuan's exchange rate would be kept basically stable at a reasonable, balanced level and it said monetary policy would be fine-tuned in line with domestic and global conditions.

The PBOC also reaffirmed its commitment to fighting inflation alongside ensuring stable growth.

It said inflation as measured by the GDP deflator, the broadest gauge of prices pressures in the economy, was 8.6% in the first half of 2008, up from 4.2% a year earlier.

“The GDP deflator has been rising since the second quarter of 2007. We need to pay close attention to the trend,” the report said. (Reuters)