The People's Bank of China (PBC) announced Thursday it might use
a variety of measures, including bank and treasury bond issues and
reserve requirement ratios, to control the country's "severe"
liquidity problem.
A PBC report gave no details about the extent of the measures or
when or how they would be implemented, but it stressed that
absorbing liquidity in banks and strengthening credit control could
not fundamentally tackle the constant and rapid accumulation of
liquidity and other structural problems.
"These measures can only create a steady monetary and financial
environment for China's economic growth and win time for
restructuring and reform," said the central bank's Third Quarter
Report of the Implementation of the Monetary Policies.
Excessive growth in investment, the trade surplus and credit
remained the prominent problems of the Chinese economy.
"China still faces severe situations on liquidity.... The role
of price levers will be strengthened while the use of interest
rates and exchange rates policies will be more coordinated so as to
stabilize inflation anticipation," it said.
The report identified the immediate reason for excess domestic
liquidity as the continuous surplus of international payments, but
also pointed to deep-seated structural problems, such as the high
saving ratio accompanied by low consumption.
The report revealed that bank savings are shifting from time
accounts to current accounts, although the saving inclination among
local residents picked up slightly after interest rate hikes,
interest tax cuts and rising risks on the capital market.
PBC figures show the decline in aggregate deposits on individual
accounts slowed in the third quarter, with the drop being 213
billion yuan (about $28.55 billion) less than the decrement in the
second quarter.
At the end of September this year, the balance of deposits in
Renminbi rose 6.9 percent over that of 2006 to 17.2 trillion yuan
($2.3 trillion). The growth was 9.2 percentage points lower than
the comparable previous figure.
The total balance of deposits in Renminbi and other currencies
by all financial institutions amounted to 39.5 trillion yuan ($5.29
trillion) at the end of September, up 16 percent over the same time
of 2006. The rise was 0.4 of a percentage point lower than the
comparable growth rate between September 2006 and September
2005.
The report said the central bank would strictly monitor
short-term capital inflow, tighten exchange settlement management
and make efforts to satisfy the demand of domestic institutions for
foreign currencies by expanding overseas investment channels and
encouraging companies and individuals to carry out industrial and
financial investment abroad.
Investment, a more powerful engine than consumption of China's
economy, which was expected to register a double-digit growth for
the fifth year, will continue to grow rapidly boosted by strong
investment sentiment and sufficient capital supply.
PBC figures show approximately 170,000 new projects have been
started in the first nine months of this year, up 18,000 from the
same period of last year, involving an aggregate planned investment
of six trillion yuan, up 24.2 percent over the same period of last
year.
Although per capita cash income for rural households and per
capita disposal income for urban homes have both grown faster than
the GDP, the report said consumer price hikes may dampen the
consumption growth to some extent.
Inflation risks deserve continuous attention as the upward
movement in prices for grain crops and energy products as well as
labor costs was expected to raise the possibilities of price hikes
on the whole.
Boosted by its rocketing trade surplus, which hit $185.7 billion
by the end of September, exceeding the total trade surplus of
$177.47 billion for 2006, China had registered $1.43 trillion in
foreign exchange reserve by September, up 45.1 percent
year-on-year, the highest in the world.
The country's consumer price index, a key measure for inflation,
hit a 11-year high of 6.5 percent in August.
This year the central bank has raised the reserve requirement
ratio by four percentage points accumulatively, cut interest income
tax from 20 percent to five percent, and lifted interest rates five
times.
(Xinhua News Agency November 9, 2007)
