China c.bank vows to support growth, avoid "pumping out" too much cash

BEIJING (Reuters) - China's central bank made clear on Tuesday it is ready to fight any downturn in the world's second-largest economy as it warned of strong headwinds to growth and likely anaemic global demand.

But at the same time the central bank acknowledged concerns about rising debt levels in China by saying said it would avoid any excessive credit stimulus that could stoke financial risks.

The People's Bank of China reiterated in its fourth-quarter monetary policy report that it would keep policy prudent to ensure it is neither too tight nor too loose.

"The economy still faces relatively big downward pressure amid the process of economic restructuring," the central bank said.

"Looking ahead, it's hard to see any big improvement in external demand. Some industries with excess capacity are still increasing capacities at a great speed, which could increase downward pressure on prices, especially industrial prices."

Smarting from a sagging property market, erratic export growth and a government-led slowdown in investment, the Chinese economy suffered its worst cooldown in 24 years last year when annual growth fell to 7.4 percent.

To spur demand, the central bank loosened policy outright twice in three months by cutting interest rates and reducing the amount of deposits that banks must hold as reserves.

"We will make appropriate and timely adjustments when there are relative big changes in basic conditions...to prevent the economy from sliding, but (we will) also pay attention to avoid 'pumping out' too much money," the central bank said.

It vowed to fine-tune policy in a timely manner, keep the liquidity level appropriate and credit growth reasonable. It also promised to prevent any systemic risks in the financial system.

Climbing bad debt levels are a growing risk in China as its economy stutters.

Bad debt levels across Chinese banks jumped to a five-year high of 1.6 percent at the end of 2014, government data showed in January, and signs of rising financial stress emerged again on Tuesday. [ID:nL4N0V21OP]

Singapore's DBS Group Holdings reported that its China bad debt provisions quadrupled in the latest quarter, as its chief executive warned of other unexpected surprises on the back of the country's anti-graft campaign and debt woes in certain corporate sectors.

China's public and private sectors are grappling with substantial debt levels. A state audit showed local governments owed about $3 trillion in debt at the end of June 2013, while Standard and Poor's estimated last year that non-financial Chinese companies have chalked up about $12 trillion in debt.

That leaves China with a debt burden of around 150 percent of its 2014 gross domestic product.

(Reporting by Judy Hua, Koh Gui Qing and Kevin Yao; Editing by Jacqueline Wong)