OPINION> EDITORIALS
Exit of easy money
(China Daily)
Updated: 2009-11-05 08:40

With more foreign central banks having begun to tighten their credit supply nowadays, Chinese policymakers need to review the "moderately loose" monetary policy that has so far effectively powered a strong rebound of the national economy.

The prevailing assumption that a supportive monetary policy remains necessary in this country for the coming two quarters is largely a result of fears and obligations.

On the one hand, in spite of accelerated economic growth at home, Chinese officials are still very much worried about the weakness of the global recovery, particularly in the rich countries. If the export sector cannot resume its long-term role as a growth engine for the economy any time soon, China has to continue to fuel investment and consumption growth with ample liquidity supply.

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On the other hand, while major economies have promised to jointly fight the worst global recession in many decades with domestic stimulus, Chinese policymakers seemingly feel obliged to stay the course until the world economy is finally able to find itself on a solid footing.

However, if recent decisions by central bankers in Israel, Australia and Norway to raise interest rates and the increasing possibility that India, Brazil and South Korea are to follow shortly do make sense, China should also reconsider its monetary policy in line with its domestic economic conditions.

Quantitative easing, as an expedient, has at best only stanched the bleeding of the United States and some other debt-laden economies for the moment. The efficacy of such a policy has not been proven. But it is definitely dangerous for interest rates to stay too low for too long.

For a fast developing economy like China which is apparently back on its long-term growth track, the current loose monetary policy can be even more hazardous.

Though the country's headline inflation remains negative, it is only a matter of time now before consumer inflation returns. The Chinese government also recognized the need to caution against rising inflation expectations.

Worse, as the World Bank warned yesterday, China must avert loan-fueled stock and property market bubbles.

The sluggishness of the world economy may, to a certain extent, help put a check on oil and commodities prices to prevent consumer inflation from shooting through the roof.

Yet, if the Chinese central bank does not respond quickly to rein in credit growth, unchecked asset bubbles can seriously distort allocation of resources and thereby undermine the country's long-term growth prospects.

(China Daily 11/05/2009 page8)