Latest News:  


No pains, no gains for China's economy

By Xinhua writer Liu Jie (Xinhua)

08:06, June 27, 2013

BEIJING, June 26 (Xinhua) -- An interbank liquidity crunch has made China's overextended commercial banks the first sector in the country to feel the pressure of the reform package initiated by the new leadership.

Despite the unusually-high interbank lending rates over the past two weeks, China's central bank, surprisingly, did not pump hefty amounts of money into the cash-thirsty market as expected in a bold but essential move to discipline unchecked lenders.

Such financial brinkmanship spooks investor confidence, sending the benchmark stock index into a tailspin to a four-year low this week. The panic, if unsoothed, may worsen the already slowing world's second largest economy.

It takes pains to get through the liquidity crunch, but it also paves way for future gains. For the blessing of a more sustainable economy, banks are the first, but certainly not the last to suffer the hardship.

The central bank has an arsenal of policy options at its disposal to ease the cash strains. It also pledges liquidity support to stem systemic risks if necessary. But its cautious attitude toward fueling another round of easy money is necessary to squeeze the bubbles and send the economic vessel onto a safer route.

In the wake of the global financial crisis in 2008, the central authority adopted a 4-trillion yuan stimulus package comprising of massive infrastructure investment and bank lending.

While the stimulus helped lift China out of the shadow of recession, commercial banks, real estate developers and local governments used the package as a chance to start a credit binge over the past years. Sadly, a substantial amount of the money flowed into financial derivatives rather than the real economy.

According to Zhang Monan, a researcher with the State Information Center, the debt of enterprises was 122 percent of the country's GDP in 2012, hitting a 15-year high.

A great portion of the money was lent to state-backed large-scale projects with a long return cycle and short maturity date.

As a result, local government debts are spiralling up. Property prices have not been tamed. These unstable elements heighten the dangers of asset price bubbles and potentially defaults if loans turn sour.

It is time to deflate bubbles and restore normal practice.

The road-map is clear.

The new cabinet has announced a raft of reform plans such as cutting red tape in approving business projects, reducing taxes for small- and medium-sized business and developing service trade.

The core of the reform package is to give the market much greater say in allocating economic resources in order to raise efficiency and pursue social fairness.

Analysts have lowered their forecasts of China's GDP growth for 2013. But the central authority has shown rare tolerance for slower growth rate in exchange for more sustainable and balanced development. It has the courage, as well as the ammunition to keep the situation within control.

If long-term gains can be secured, short-term pains will be worth it.

We Recommend:

'All in Tuning All in Caravanning' Show

HK's new cruise terminal receives luxury liner

Huawei unveils thinnest smartphone in Singapore

Airbus A350 lands safely from test flight in S. France

Special coverage: China-EU solar row

Highlights of ATC Show 2013

Top 10 luxury villas of China in 2013

Turn rabbit to 'gold' - A young entrepreneur's goal

Hilton to open 120 new hotels in China

Email|Print|Comments(Editor:WangXin、Gao Yinan)

Leave your comment0 comments

  1. Name


Selections for you

  1. Special forces in joint training

  2. J-15 fighter fastened on aircraft carrier

  3. Best photos of week (June 17 - June 23)

  4. Terraced fields in SW China

  5. China's weekly story (2013 6.15-6.21)

  6. Photos: Hazy life in Beijing

  7. Camacho's embarrassing records

  8. Cos girls shining at Kafu Comic-Con

  9. Chinese shares extend losses

  10. Highlights of luxury China 2013

Most Popular


  1. Money not the answer to all problems
  2. Syria conference unlikely to be in July
  3. Snowden not on board flight to Cuba
  4. Cause of human rights should ground in reality
  5. Snowden case should not affect Sino-U.S. ties
  6. Chinese consumer spending weakens
  7. Think tank has huge potential for development
  8. Why top scorers in Gaokao choose to go abroad
  9. Mobile Web alters Internet industry
  10. Stocks plunge, analysts eye liquidity

What’s happening in China

Wait and See!
I can catch you, rats

  1. Shanghai reports 1 H7N9 death
  2. 5 dead, 23 injured in NW China road accident
  3. Rehab centers face obstacles in China
  4. Sniffer dogs get new life with families
  5. Chemical plant blaze blamed on illegal work