Zhou Xiaochuan, governor of the ,
admitted that China had gone from fighting deflation to watching
out for inflation in the early months of 2003. The central bank has
been dealing with those changes, he said.
"But so far, we do not think we should make very serious
monetary policy changes," he said, adding that the authorities
intended to make only minor and necessary adjustments rather than
making hasty policy changes.
Zhou made the remarks at a forum held Saturday in Beijing on
China's economic growth and its impact.
He was echoed on Saturday by Wu Xiaoling, deputy governor of the
bank, at a forum sponsored by the Development Research Center under
the State Council. Wu said that instead of focusing on interest
rate levels, the central bank would promote the liberalization of
the interest rate regime to improve the transmission mechanism for
monetary policy.
"In this round of macroeconomic management actions, the central
bank is not focusing its attention on adjusting the level of
interest rates," she said.
Interest rates on local currency deposits are already
considerably higher than those on dollar deposits in the Chinese
and international markets, and any improper move in this area may
quicken the inflow of foreign currencies, she said.
The massive inflow of dollars in recent months, partly as a
result of expectations that the local currency, or renminbi, will
appreciate soon, is seen as a major force driving China's rapid
monetary growth. The central bank has had to purchase excess
dollars with local currency.
"It is too early to change the overall policy direction," Zhou
said, adding that the central bank will closely watch the
trend.
China's GDP grew 9.7 percent year-on-year in the first quarter,
in line with that seen in 2003, when GDP growth was 9.1 percent for
the year and 9.9 percent in the fourth quarter.
The growth has been largely driven by fixed investment, which
jumped 43 percent in the first quarter to 879.9 billion yuan
(US$106 billion).
The consumer price index, a key barometer for inflation,
reversed months of negative annualized growth last year to hit 3.2
percent in January of this year, the fastest pace in the past few
years. It came in at 2.8 percent for the first quarter.
The uptrend is likely to continue in the second quarter of the
year, Wu said, and once it rises above the lending rate, which
means negative borrowing costs, businesses will build up their
inventories, pushing prices up further.
The one-year lending rate at Chinese banks currently stands at
5.3 percent.
"If the consumer price index rises further to bring the real
interest rate on loans into negative territory, the central bank
will not turn a blind eye," Wu said.
But economists generally hold that instead of an overall
overheating, the Chinese economy has only seen excessive expansion
in certain sectors, including real estate and automobile
manufacturing.
Fan Gang, director of the National Institute of Economic
Research, also said he was quite optimistic about China's
soft-landing stance.
"I don't think the current growth rate is too far from being
sustainable," he said.
Hopefully the macro policy will take effect in the second half
of the year, Fan said. That would bring annual economic growth to
about 9 percent and between 8 and 9 percent next year, which is
suitable for China.
While keeping a close eye on further developments in prices and
monetary growth, Wu reiterated the central bank will use various
monetary policy tools to achieve its policy goals this year.
The growth of broad money supply, the central bank's main
target, stood at 19.1 percent last month, far outstripping the
full-year goal of 17.0 percent.
The central bank raised reserve requirements by 1 percentage
point to 7 percent in September last year, a move aimed at
restricting banks' lending capacity.
Loan growth subsided slightly in the following months, but
recovered again in the first two months of 2004, with broad money
M2, which covers cash in circulation and all deposits, rising by an
annualized 19.8 percent, 1.3 percentage points faster than one year
earlier.
The central bank stepped up open market operations in the first
quarter of this year, sterilizing all the liquidity generated by
its huge purchases of dollars during the period, Wu said.
The central bank also raised reserve requirements for some
commercial banks by half a percentage point late last month.
Before the move takes effect, expected on the 25th of this
month, the bank announced an across-the-board increase in reserve
requirements on April 11, also by half a percentage point, for all
financial institutions except credit cooperatives. The two
increases take effect on the same day.
(China Daily April 19, 2004)