RBA watchful of China industrial slowdown: Glenn Stevens

The Reserve Bank will keep an eye on China’s economic progress following new data showing the Chinese economy has slowed down, says governor Glenn Stevens.

Concerns about China's growth were expressed by Stevens as part of a questions and answer session following his speech to the Australian Payments Clearing Association (APCA) 20th Anniversary Symposium in Sydney today.

The new data, the HSBC Flash Purchasing Managers Index, showed that China’s purchasing managers index fell from 49.3 to 48.6 in May.

The index is considered an earliest indicator of the strength of China's industrial sector.

"One caution I'd offer is that we typically read a [purchasing managers index] level below 50 as meaning they're contracting, but what it means [for China is] they're growing slower than average if you calibrate that carefully," Stevens said.

Around half of the planned investment driving the current mining boom is based on expectations about the growth of China.

“Very few long-term economic issues therefore matter to Australia as much as how fast China will grow, for how long, and in what pattern,” wrote John Edwards, Lowy Institute visiting fellow, on Business Spectator in March.

His comments followed the publication of a World Bank report that said that under a “favourable scenario” GDP growth in China would slow from the current rate of over 9% to 5% by 2026.

During his speech to the symposium today, Stevens also highlighted the growing role of the RBA as a regulator of financial markets.

He said the global push to strengthen financial regulation in the wake of the GFC had increased the role of the RBA in overseeing financial markets infrastructures (FMIs) such as securities settlement systems.

“Oversight of FMIs therefore demands a significant proportion of the Board's time. It is also this work that is expanding most rapidly.

“The logic of this reform is that it will reduce and simplify bilateral exposures between counterparties.  But it will also increase the systemic importance of the financial infrastructure, because we will in effect be creating a small number of ‘single points of failure’.

“Hence the resilience of that infrastructure will be critical, and the obligation of the official sector to provide proper oversight to ensure that resilience will correspondingly increase,” Stevens said.