Governor of the People's Bank of China Zhou Xiaochuan speaks
at the opening ceremony of the annual meeting of the boards of governors
of the African Development Bank Group in Shanghai May 16, 2007.
China may further raise interest rates or bank reserve requirements to keep
the macro economy stable, said central bank Governor Zhou Xiaochuan on Thursday.
"We do not rule out the continued use of interest rates, bank reserve
requirements or other monetary tools to keep the stability of the macro
economy," said Zhou at a press conference after the conclusion of the annual
meeting of African Development Bank in Shanghai.
China has raised interest rates three times since last April and ordered
banks to set aside more money as reserves seven times since last July. But the
tightening policies have largely failed to prevent the economy from becoming
The gross domestic product grew 11.1 percent in the first quarter of the
year, compared to last year at 10.7 percent, official statistics showed.
The growth of investment is also accelerating. In the first four months,
urban fixed asset investment soared 25.5 percent, up from 25.3 percent in the
first quarter, and 24.5 percent in 2006, the National Bureau of Statistics said
Industrial output rose 17.4 percent in April after climbing 17.6 percent in
March, the bureau said on Wednesday. Trade surplus ballooned 63 percent in April
from a year ago to US$16.9 billion.
Bank lending was also strong. Banks extended 422 billion yuan in new loans in
April, bringing the amount for the first four months to 1.85 trillion yuan -
more than half the total for the whole of 2006.
In April, M2, the broad measure of money supply grew 17.1 percent, well above
the central bank's full-year target of 16 percent.
Inflation, measured by the consumer price index, grew three percent in April,
barely meeting the central bank's target, but hovering above the benchmark
one-year deposit interest rate for the third straight month.
The negative interest rate is encouraging the Chinese to divert large amounts
of bank savings into stocks.
Household deposits decreased by 167.4 billion yuan (US$21.7 billion) in
April, compared with an increase of 60.6 billion yuan (US$7.9 billion) during
the same time last year, the central bank said on Sunday. Analysts expect a
substantial part of money may have flowed into the stock market.
A total of 4.79 million new A-share trading accounts were opened in April,
more than the combined total for the previous two years, according to statistics
from the China Securities Depository and Clearing Corporation.
The wave of new money has pushed the Shanghai and Shenzhen markets to a
string of new highs, prompting worries about bubbles developing in the equity
Earlier this month, Zhou said bubbles building in the stock market were a
Ha Jiming, chief economist of China International Capital Corporation,
expects the central bank to raise the interest rate to pull the real interest
rate out of negative territory as well as curb growth in money supply, inflation
and asset prices.
His agency predicted two more interest rate increases this year, with the
first happening before June and second in July or August.