Sound monetary policy remains key

By Jin Rong (China Daily)
Updated: 2006-11-03 07:25

China will continue to pursue a sound monetary policy, which will be more closely linked to its industry, taxation and foreign exchange policies, a top central bank official said Thursday."

In order to maintain stable and healthy national economic growth, we will continue to stick to a sound monetary policy," Su Ning, deputy governor of the People's Bank of China, said yesterday.

"And we will seek more and effective co-ordination with industry, taxation and foreign exchange policies when drafting our monetary policies," the deputy central bank governor said, without elaborating.

The central bank would continue, as it did before, to employ a host of measures to curb expansive money supply and credit growth.

The measures may include open market operations, as well as interest rate and bank reserve ratio adjustment, Su told the BusinessWeek CEO Forum in Beijing.

The central bank has so far raised the interest rate twice and bank reserve ratio deposits that commercial banks are required to make with the central bank once this year in a bid to cool the sizzling economy.

Su said that macroeconomic tightening measures had already succeeded in reining in red-hot economic growth.

The Chinese economy grew 10.9 per cent in the first half of this year, with this growth slowing to 10.4 per cent in the third quarter.

But the economy still faces several challenges if it is to maintain robust yet healthy growth, Su said, pointing to slumping consumption, the soaring trade surplus and escalating fixed-assets investment.

The overall proportion of consumer spending in the national economy has been on a downward spiral for some time, which may pose problems for economic development, Su told the forum.

The proportion, Su said, has slid from 62 per cent in the 1980s to 52 per cent last year.

Problems related to the international balance of payments remain serious, with the foreign trade surplus continuing to soar this year, he said.

And the risk still remains that fixed-assets investment, which is "still bigger than it should be," may rebound again, as local governments and enterprises continue to invest more money in projects, the deputy central bank governor said.

China's fixed-assets investment grew by a spectacular 29.8 per cent in the first half of this year and increased 27.3 per cent in the first nine months of 2006.

The central bank, Su said, will put expanding domestic consumption high on its policy agenda.

The bank will also work to improve the credit structure, Su said.

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