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Fed's Powell Says Understanding China’s Economy Is ‘Very Hard’

Jeff Kearns

(Bloomberg) -- Federal Reserve Chairman Jerome Powell said it’s hard to know what’s happening with China’s economy and that Beijing’s deleveraging campaign is part of the reason for slower global growth.

“It’s very hard to understand China,” Powell said Wednesday in testimony before the congressional Joint Economic Committee in Washington. “You can read all you want, you can visit it all the time, but nonetheless it’s still very hard, I think, for me anyway, to really feel like you understand how the economy works.”

San Francisco Fed President Mary Daly echoed his comments later on Wednesday, saying it’s hard to know the reasons for the slowing in the world’s second-largest economy. It’s difficult to parse out how much of the slowdown is the natural maturing from double-digit growth to a steadier expansion, versus how much is a cyclical downturn or slower growth as seen in Europe, she said in a Bloomberg Television interview in San Francisco.

Slowing Growth

The comments highlight the challenges for U.S. policy makers assessing risks from abroad as they signal they’re happy with their monetary policy stance after three interest rate cuts this year. China’s third-quarter growth of 6% was the slowest pace since the early 1990s.

Powell also pointed to the maturing of the economy and said he sees China’s leadership as trying to manage the longer-term decline from three decades of fast growth, though he noted that efforts to prop up growth have been less intense than after the financial crisis.

“They haven’t responded with massive stimulus to this current situation,” Powell told the panel. “They’ve been much more cautious and careful. They have a deleveraging campaign, as I’m sure you know, that’s been going on for one or two years and they haven’t really backed away from that, and that’s part of, by the way, the global slowdown, trying to at least stop debt from growing.”

Powell spoke in response to questioning by Republican Senator Tom Cotton of Arkansas, who pressed him about research by finance professor Michael Pettis of Peking University’s Guanghua School of Management in Beijing that finds the economy is growing more slowly than officially reported. Powell said he was familiar with the research.

Grain of Salt

“We’ve noticed here in the last few years that the volatility of their economic reports has declined substantially, which kind of suggests a little bit more management,” Powell answered. “Nonetheless the truth is, we don’t really know. We have to take the data, and we do take it, with a grain of salt.”

Daly said deciphering the trends in China’s economy will be on the agenda as researchers gather Thursday and Friday at the San Francisco district bank’s Asia Economic Policy Conference.

“We see the reverberations in business investment and other things when China slows, so we’re thinking about that,” she said. “We can do a lot looking at the data and thinking about research papers, but talking with people who live in the country and work in those areas is really how you get that picture filled out.”

--With assistance from Rich Miller and Kathleen Hays.

To contact the reporter on this story: Jeff Kearns in Washington at jkearns3@bloomberg.net

To contact the editor responsible for this story: Alister Bull at abull7@bloomberg.net

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