Australia bank chief upbeat on China

Australia's central bank chief on Tuesday played down fears of a significant slowdown in key trading partner China, describing it as "cyclical" in an upbeat assessment of the domestic economy.

Reserve Bank governor Glenn Stevens said Australia's "remarkable" recession-beating performance in the financial crisis had been underpinned by its ties to Beijing, stable banks, a floating dollar and stimulus measures.

China is Australia's biggest trading partner and its economy, the world's second largest, grew 7.6 percent in the second quarter year-on-year, its slowest pace in more than three years.

Stevens said it was cooling in line with Beijing's plans and was consistent with annual growth in "the seven to eight percent range".

"The recent data suggest that, so far, this is a normal cyclical slowing, not a sudden slump of the kind that occurred in late 2008," he said.

"To be sure, that is a significant moderation from the growth in GDP of 10 percent or more that we have often seen in China in the past five to seven years. But not even China can grow that fast indefinitely."

Earlier "breakneck" growth in China had stoked inflation, overheated property markets and led to a "good deal of poor lending", he said, adding that moderation was preferable if it allowed sustainable growth in the long term.

Australia was the only developed economy to avoid recession during the global financial crisis but its strength has come under renewed scrutiny with Europe in turmoil and China easing.

Stevens said some commentators were warning that the "luck" it had enjoyed so far may be about to change.

But he said Australia started from a solid base following years of hard work and dismissed concerns about any vulnerability, describing it as in a better position than pre-crisis.

Stevens said Australia was well positioned to weather any fresh storms, with its banks stronger than they were several years ago due to higher savings rates and less offshore borrowing.

Housing prices had fallen without the kind of damaging crisis seen in other countries with "the ingredients we would look for as signalling an imminent crash seem(ing), if anything, less in evidence now than five years ago".

"The degree of vulnerability to a global panic of any given magnitude appears to have diminished, rather than grown, over the past few years," said Stevens.

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