China tiptoes on more credit tightening

09:23, May 17, 2010      

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With European sovereign debt uncertainties still lingering, China will remain cautious in unwinding its huge stimulus plan and tighten monetary policies further, though inflation has risen since the beginning of the year.

The anticipated hike of the benchmark interest rates over the weekend did not materialize, despite Beijing's statisticians reported last week that consumer price index reached 2.8 percent in April, the highest in 2010, and industrial wholesale price index soared to 6.8 percent.

Economic professors from Beijing's renowned Peking University and Qinghua University have predicted that the Central Government won't raise the rates unless it is “quite sure that a rise is necessary”.
They said that the decision by the U.S. Federal Reserve on whether to unwind American's near-zero federal funds rates would also have a clear impact on China's. It is expected the U.S. central bank won't raise its rate within 2-3 months, though housing sales in America have increased lately.

China's Premier Wen Jiabao said over the weekend that the country faced uncertainties and tough challenges in balancing its economic structural mix, hinting that Beijing is hesitant to tighten its monetary policies even further to curb inflation.

China must avoid “piling on adjustment policies”, which carry risks of "negative consequences" on the economy, amid complex domestic and international conditions, Wen said, according to Xinhua News Agency.

Housing sales throughout Chinese cities have slumped by as much as 50-60 percent, since Wen's government ordered a clampdown on housing speculation by raising rates and down payment on second housing, halting mortgages on third housing and making investors more difficult to purchase properties in other cities other than their official registered residence.

The experts said that a lull of the real estate sector will cause a cascading cooling in other sectors, including iron and steel, cement, furniture and building materials.
Beijing also is worried about a slowdown in economy in the second half of the year, as offshore demand for Chinese goods will remain weak, especially from Europe, China's biggest trading partner.

However, other economists have strongly suggested China raise interest rates immediately to curb rising inflation. With last year's record excess liquidity, US$1.4 trillion in total, driving up prices across the board, they claimed that inflation could spiral higher in May and June. During the first four months this year, China's banks lent 20 percent more on the base of last year's record loans.

China's gross domestic product expanded by 8.7 percent in 2009 as the country weathered the global financial crisis and its economic growth accelerated to 11.9 percent year-on-year in the first quarter of this year.

Economists have said that Beijing will have to walk a tight rope in coordinating its fiscal and monetary policies in the coming months, in order to prevent inflation from surging higher while continuing to attain a relatively fast pace of economic growth.
With the jitters over imminent interest rate hike gone, China's stock markets are expected to stabilize and consolidate this week, as investors who stayed offline will choose to buy shares, according to some market watchers.

By People's Daily Online


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