A senior researcher under the mainland's top economic planner yesterday stressed the need to curb excessive investment by reining in easy credit, adding to speculation that the central government would soon raise lending rates and capital reserve requirements for banks.

 

"The overall economy is on a sound track but there are potential risks such as inflationary pressure, excessive credit growth and overcapacity in 12 industries including steel and energy," said Wang Yiming, vice-president of the Academy of Macroeconomic Research under the National Development and Reform Commission.

 

The commission oversees the mainland's economic development and supervises some pillar industries such as property and steel.

 

Wang made the remarks at a seminar organized by the Hong Kong General Chamber of Commerce in Hong Kong yesterday.

 

To rectify the situation, Wang said the central government could "seize a chance" to raise the benchmark lending rate again to tighten market liquidity.

 

And, "if necessary," the central bank could increase the reserve ratio again for banks.

 

He stressed that he was voicing his own opinions and not the official government position. But he didn't elaborate when and at what extent such measures should be adopted.

 

In the past months, the mainland has put in place a slew of measures to prevent the economy from growing too fast.

 

In April, the People's Bank of China, the central bank, raised its one-year lending rate by 0.27 of a percentage point to 5.85 percent in its first increase since October 2004.

 

In May, a number of policies including taxation were announced to curb excessive investment in the property market, a sector that has long been considered the major cause of a runaway economy.

 

In June and July, the PBC twice adjusted the reserve ratio for lenders 50 basis points each time requiring commercial banks to put 8.5 percent of their deposits in the central bank starting from August 15.

 

The mainland last month also proposed a restriction on foreigners buying properties on the mainland.

 

But the measures didn't see an immediate effect until first-half macroeconomic data were released in July.

 

The mainland's gross domestic product (GDP) growth was up 10.9 percent year-on-year in the first half. It grew by an astounding 11.3 percent in the second quarter, the highest in more than a decade.

 

Fixed-assets investment witnessed a lofty rise of 30 percent in the first six months, driven by affluent money supply and a huge inflow of foreign funds.

 

The situation prompted some economists to call on the central government to press ahead with tightening policies to prevent the economy from overheating. And many expected imminent lending rate hikes.

 

However, some economists believed the mainland should wait some time before announcing further cool-down measures. They said it could be months before earlier measures take effect.

 

An economist in Hong Kong said yesterday that the tightening policies implemented by the central government since April have paid off.

 

Tao Dong, Credit Suisse's regional chief economist for Asia, said the purchasing manager index, a barometer to measure private business activity, sagged by 1.7 percentage points to 52.4 percent on the mainland in July.

 

That reflects the effect of tightening steps surfacing in various sectors, he said in a research note.

 

(China Daily August 3, 2006)