Opinion

Healthy credit growth

(China Daily)
Updated: 2010-01-08 07:56

Strong credit support has played a remarkable role in enabling China to meet its growth target of 8 percent last year in spite of all the difficulties the global financial crisis threw in its way.

But to sustain its economic recovery in 2010, Chinese policymakers need to fine-tune the supply of money more often than ever to both boost economic growth and tame inflation worries.

The People's Bank of China, the central bank, stressed on Wednesday that it will maintain a moderately loose monetary policy in 2010 and determine the policy's focus and flexibility to adjust to new circumstances.

Though the wording of the new policy still resembles much of what the monetary authorities had adopted at the end of 2008 to temper the global financial crisis, the challenges ahead have changed considerably.

A year ago, the global economy was in the grip of the worst crisis since World War II. The Chinese economy was tumbling toward the slowest quarterly growth rate in almost a decade.

Under the circumstances, a massive increase in credit supply was more than necessary. The Chinese government quickly rolled out a 4-trillion-yuan ($586 billion) stimulus package to cushion the national economy against the global recession.

New yuan-denominated loans exceeded 9.2 trillion yuan in the first 11 months of 2009, 5 trillion more than the same period from the previous year.

With this credit support, China's economy rapidly recovered from a 6.1 percent growth in the first quarter to an 8.9 percent growth in the third quarter last year.

However, after the Chinese economy successfully rebounded and began to quickly grow, the focus of the country's monetary policy has been shifting away from driving sorely needed growth to improving the economic structure and managing inflation expectations.

While the market is guessing how many new loans will be granted, the central bank is wise to emphasize a balanced structure and supply of good quality credit in 2010.

Since the economic recovery is not on completely solid footing, it will be difficult for policymakers to tighten the monetary supply too early to check growth momentum.

Meanwhile, the flood of cheap credit has already given rise to inflation expectations and asset bubbles in some sectors such as real estate. Chinese policymakers must be vigilant against these problems. That means they need to adjust the supply of credit subtly and timely this year to lay a solid foundation for sustained recovery.