China committed to reforms, to take decisive steps - vice premier

By Langi Chiang and Jonathan Standing

BEIJING (Reuters) - China remains committed to steering its economy towards consumption as the main growth driver, and away from investment and exports, and will fine-tune policies to deal with any prolonged slowdown, Vice Premier Zhang Gaoli was quoted on Monday as saying.

China will stick to its prudent monetary policy, but will take decisive measures to support reasonable infrastructure and social welfare investment as well to develop the export sector, service industry and small firms, he told local officials on a weekend trip to Guizhou, a southwestern province.

His remarks, released on Monday, came after China's central bank scrapped the floor on lending rates, in a long-awaited reform that signalled the new leadership's determination to carry out market-oriented reforms.

The move kept expectations high on how quickly China's new government, led by President Xi Jinping, will press ahead with reforms aimed at boosting the country's long-term growth without exacerbating a near-term slowdown.

"We are committed to speeding up economic restructuring to improve the quality of growth," Zhang was quoted as saying in the statement on the government's website, www.gov.cn.

"We must make pre-emptive (policy) fine-tuning in a timely and appropriate manner," he added.

"We must take decisive fiscal, financial and pricing measures to support reasonable infrastructure investment, social welfare projects, the services sector, exporters and small- and medium-sized firms."

Zhang repeated the official line that China's growth is still within a reasonable range and that the economic environment is getting more complicated.

Growth in the world's second-biggest economy has slowed in nine of the past 10 quarters and exports fell in June for the first time in 17 months.

Changes in capital flows form one part of the challenges facing Chinese policymakers amid rising expectations that the United States will soon scale down its bond buying programme, though the situation is currently stable, according to the foreign exchange regulator.

"Currently, we do not have signs of active and sudden flight of foreign capital," the State Administration of Foreign Exchange said in a separate statement on its website, www.safe.gov.cn.

"There is wide acknowledgment in the market that the yuan currency rate is at its equilibrium level and the trend of two-way fluctuations is rising," it said, adding that Chinese policymakers and companies must adjust to the changes.

SAFE said cross-border capital flows will stay basically balanced in the second half of this year, although sluggish external demand and rising trade frictions will pressure exporters.

The trend in capital movement swung into outflow in June, as China's central bank and commercial lenders sold 41.2 billion yuan worth of foreign exchange, ending six consecutive months of net purchases.

"The abating expectations on yuan appreciation is helpful to easing capital inflows," SAFE said, adding that the year could be like 2012, when China saw inflows in the first half but outflows in the second half.

(6.1413 yuan = $1)

(Additional reporting by Xiaoyi Shao and Kevin Yao; Editing by Richard Borsuk)