The People's Bank of China (PBOC) -- the nation's central bank -- cautioned against a possible rebound in fixed investment and the continued threat of inflation in its annual monetary policy report, released on Thursday.
It pledged to maintain a prudent monetary policy this year while using such economic instruments as interest rates to assist in macroeconomic management.
The bank warned that the possibility of a rebound in fixed investment still lurks. Excessively rapid growth in this area is considered a major contributor to economic overheating.
Fixed investment surged 25.8 percent year-on-year in 2004, to 7 trillion yuan (US$840 billion). The growth rate was down 1.9 percentage points from the pace recorded a year earlier, according to the report.
"But the magnitude of fixed investment remains on the large side, and there is still strong investment impetus," the bank said in its report.
The government implemented a variety of macroeconomic measures as early as 2003 to contain the rapid increases in fixed investment and harness accelerating prices, largely by restricting bank credit and controlling the use of land.
Growth in real estate investment slowed to 28.1 percent last year from a staggering 50.2 percent a year earlier, but the level remains high. The PBOC said that rapid property price increases -- up 9.7 percent last year -- bear close attention. Nine cities reported increases of more than 10 percent for the year.
The central bank also expressed worries about persistent inflationary pressures, noting that climbing upstream prices are already being passed on to consumers.
"Although stabilizing grain prices will help reduce the upward pressure on the consumer price index (CPI), there are other factors that may drive prices up further. The inflationary pressure has yet to be fundamentally alleviated," the report said.
China's CPI rose 3.9 percent last year and is expected to grow about 4 percent this year.
With the macroeconomic measures expected to continue having effect, the central bank said the nation's monetary performance would tend to be stable. This year's 15 percent target for money supply growth, scaled down from last year's 17 percent, will create a favorable environment for stable economic growth, it said.
(China Daily February 25, 2005)
