Tightened macro policy to continue

By Xin Zhiming (China Daily)
Updated: 2007-12-06 10:15

The government will continue to tighten macroeconomic regulation to prevent the economy from overheating, it said at the conclusion of the annual economic conference yesterday.

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Tightening measures will continue in the first half of next year, but they may ease if the expected slowdown in world economic growth drags the Chinese economy with it, analysts said.

The high-profile Central Economic Work Conference, an annual event attended by China's top leaders to map out policies for the next year, said monetary policy should play a greater role in macro-control efforts and the government would strictly control loans.

"Perhaps a target of 13 to 15 percent year-on-year bank loan growth will be announced and policed, unlike in previous years, bank by bank," said Stephen Green, head of research at Standard Chartered Bank (China).

As expected, the three-day conference was wrapped up with a vow to prevent the economy from overheating and to keep structural price rises from becoming inflationary.

This sends a message that the economic tightening trend will remain, said Chen Xingdong, chief economist of BNP Paribas Peregrine Securities (Hong Kong).

"But it indicates a tougher stance," he told China Daily.

China's economy expanded at a blistering 11.5 percent year-on-year for the first three quarters. The consumer price index (CPI), the main gauge of inflation, grew by 6.5 percent in October, matching the decade-high in August. Economists expect the November figure will rise further, raising more inflation worries.

Urban fixed-assets investment growth hit 26.7 percent year-on-year during the January-October period, when real estate investment rose by 31.4 percent, up from 30.3 percent in the first nine months.

The conference also signaled a shift from the multiple goals of the past to two main themes - economic overheating and inflation, Chen said.

"The policy has become clearer and more targeted."

The authorities would use both monetary and administrative means to achieve its goal of macroeconomic regulation, he said.

New yuan loans approved by Chinese banks are set to reach 3.6-3.7 trillion yuan this year, and the 2008 target would not exceed that, he said.

"This may lead to a growth rate of about 13 percent next year from about 17 percent this year, which will be a remarkable cut," he said.

Stephen Green, however, warned that it may not be an easy job to control credit. "The difficulty of restraining credit growth without an effective interest rate tool is obvious," he said.

China has raised the interest rate five times this year. But as the US interest rate is on the decline, there is not much room for China to raise the rate further, analysts said.

Apart from monetary tools, administrative measures remain an option.

"If strong overall demand continues, some form of 'window guidance' (moral suasion) is likely in the first half of 2008," Green said.

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