China's central bank announced Tuesday a decision to put into place soon a so-called "appropriately tightened" monetary policy, hoping that it will prevent a runaway economy.
But the People's Bank of China said it would not "brake suddenly" lest the economy sees a boom and bust.
The country has long been pursuing a stable monetary policy, which helped its economy -- now the 6th largest in the world and 2nd in Asia -- grow at a blistering pace.
Now, government officials and economists are afraid that the economy could be overheated largely on the back of soaring investment, especially in raw materials and real estate, fueled by excessive loans.
Chinese banks doled out 835.1 billion yuan (US$100.6 billion) in new loans in the first quarter of the year, representing 32 percent of the annual target and an increase of 24.7 billion yuan (three billion dollars) from a year ago.
And the growth was witnessed amid repeated central government calls to rein in bank credit and loans that supported overheating. China’s economy expanded 9.7 percent in the first three months, well above the government target of 7 percent for 2004.
"In general the economic outlook is sound, characterized by a continued, fast growing GDP and upgraded economic efficiency," said a central bank report released Tuesday.
But it also pointed out some aggravating problems in the economy -- too fast growth of fixed assets including capital projects and factory equipment, low-level copycat construction in some industries and areas, a resource bottleneck and greater pressure from inflation.
Propped up by food and raw materials price increases, China's consumer price index, the most widely watched barometer on inflation, rose a modest 2.8 percent year-on-year from January to March.
By means of tightened monetary policy, the central bank said it would take corresponding measures to mop liquidity in the country's financial system to prevent loan growth.
Since last September, the central bank has announced three hikes in a row in financial institutions' mandatory reserve requirements.
Commercial banks' reserve requirement was raised to 7.5 percent from 7 percent beginning April 25, meaning a loss of 110 billion yuan (US$13.3 billion) in their available funds that can otherwise be used for lending.
Vice-governor Wu Xiaoling of the People's Bank warned at a recent forum that stricter measures would come out if excess lending are not stopped.
Tuesday's report also said the People's Bank would watch closely on the trend of commodity prices and advance market-oriented interest rate reform, promote financing through stock markets and maintain a stable yuan at a rational equilibrium.
Both the broad money and narrow money are targeted to increase 17 percent this year and financial institutions are demanded to grant a combined 2.6 trillion yuan (US$313.3 billion) in new loans for 2004. The central bank report said "these goals can be achieved."
By the end of March, the outstanding broad money (M2) -- including money in circulation and all deposits -- stood at 23.2 trillion yuan (US$2.8 trillion), up an annualized 19.1 percent, still higher than the annual target.
New loans extended by all financial institutions including foreign banks added up to 913.1 billion yuan (US$110 billion) in the first quarter of the year, 59.6 billion yuan (US$7.2 billion) more than a year ago.
Loans poured into agriculture and capital projects led the increase, the report said.
While the Big Four state-owned banks provided less loans, other banks in general doled out more loans in the three-month period. Five economically advantaged provinces and municipalities including Jiangsu, Zhejiang, Guangdong, Shanghai and Shandong received 47 percent of all new Renminbi loans, it said.
(Xinhua News Agency May 12, 2004)
