An unexpected pick-up in the industrial production in May, coupled with
rising inflationary pressure and enlarging foreign trade surplus, has made a
case for further monetary tightening by China's central bank.
On Thursday, the National Bureau of Statistics reported that industrial
production grew 18.1 percent in May from a year earlier. The figure came hours
after Premier Wen Jiabao said further steps are needed to cool the economy.
Wen said Wednesday that monetary policy needs "moderate tightening,"
underscoring predictions that the central bank will once again raise the
interest rates in order to put brakes on the sizzling economy.
fiscal and taxation measures should be employed to guide the flow of capital,"
Wen said. "There should be more channels for capital outflow and for the use of
It is believed that record trade surpluses have pumped money into the
financial system, stoking investment, inflation and a stock market boom.
"Monetary tightening of some form is now imminent," said Wang Qing, chief
China economist at Morgan Stanley in Hong Kong, quoted by the
A reference by Wen to tax measures may suggest the government plans to reduce
or eliminate a 20 percent tax on interest earned on bank deposits to stem the
flow of money to the stock market, Wang said.
The benchmark one-year lending rate is 6.57 percent and the deposit rate
stands at 3.06 percent after two increases this year. The central bank has also
ordered lenders to set aside more reserves five times this year.
In response to the industrial production figures, the CSI 300 Index of stocks
closed down 1 percent.
China's economic problems include "rapid growth in industrial production and
the trade surplus, fast investment growth, excessive liquidity, increasing
inflationary pressure and energy conservation challenges," Wen said
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