Why central bank sets 15 pct money supply_经济Business
china’s central bank has set a money supply growth target of 15 percent in 2005 -- down from the 17 percent target last year -- in another move designed for further containing overheated investment and halting abrupt economic slowdown.
the people’s bank of china (pboc), or the central bank, has also noted that the new loan target for this year stands at 2.5 trillion yuan (about 302 billion us dollars), 100 billion yuan (some 12 billion dollars) lower than that of 2004.
this is in response to a message from the central economic work conference held earlier by the state council, or china’s central government, prof. qiu zhaoxiang, director of the financial research institute under the university of international business and economics, told xinhua monday.
"the new targets are getting closer to the actual financial and economic scenario," he acknowledged. last year china’s money supply growth, which powered economic expansion, came in at only 14.5 percent, while financial institutions extended loans totaling 2.2 trillion yuan (265.7 billion dollars).
china has posted an initial success in its move to cool down the heated economy thanks largely to the use of financial tools including loan curbs and the first interest rate increase in nearly a decade, but the country’s economy still grew at an estimated pace of over 9 percent.
economists agree that the country’s gross domestic product may rise at least 8 percent this year, spelling out the need of continuous, strong monetary support.
this year’s money supply target, however, has to take into full account of the current and trend price hikes, as excessive money supply growth usually leads to severe inflation.
the consumer price index (cpi), the key inflationary index of china, increased 2.8 percent last november, the lowest in nine months, posing a drastic drop of 1.5 percentage points month-on-month.
the inflation, nevertheless, only eased temporarily, economists say. a more worrisome sign is that the producer price index (ppi),a leading indicator of price pressure, has remained on an upward curve since last year, even after investment growth slackened its pace in may.
it’s a tricky situation. while high consumer prices will erode into people’s living standards, sharp differences between producer prices and the final prices threaten to significantly eat into corporate profits and disrupt economic growth.
the government said the inflation should be capped at 4 percent this year.
another bewildering picture that challenges the central bank and government is investment -- china’s economic growth hinges heavily on investment.
the growth of investment in fixed assets including infrastructure, which slowed down from blistering paces of 40 percent in early 2004 to 27.7 percent for the first three quarters, is still faster than the 26.7 percent for 2003, when worries about overheating arose.
the central economic work conference has warned of possible resurgence of overheated investment, partly because local government officials enthuse in those pointless but prestige projects.
but some projects and small and medium-sized enterprises long hit by financing problems have already suffered greatly from the macro-control, prompting them to resort to underground funds with very high interest rates, said xu hongyuan, director of the development and research department of the state information central, a governmental think-tank.
he proposals the central bank control stringently the extension of long-term loans while satisfying the firms’ demand of current fund.
the pboc could also lower its deposit reserve requirement for commercial banks, when necessary, in order to give them more money to be loaned, he said.
people are guessing whether the central bank would further raise interest rates this year, while most economists hold that the bank is awaiting to see if last year’s hike could rein in red-hot investment within a prescribed period of time. if the pboc reaches its goal, another rate hike is not that likely.
will the renminbi be revalued? central banker zhou xiaochuan reiterated at a recent meeting that the central bank will keep the yuan’s exchange rate stable at a reasonable equilibrium while going on improving the currency’s determination system and fighting against illegal trading.
the people’s bank of china (pboc), or the central bank, has also noted that the new loan target for this year stands at 2.5 trillion yuan (about 302 billion us dollars), 100 billion yuan (some 12 billion dollars) lower than that of 2004.
this is in response to a message from the central economic work conference held earlier by the state council, or china’s central government, prof. qiu zhaoxiang, director of the financial research institute under the university of international business and economics, told xinhua monday.
"the new targets are getting closer to the actual financial and economic scenario," he acknowledged. last year china’s money supply growth, which powered economic expansion, came in at only 14.5 percent, while financial institutions extended loans totaling 2.2 trillion yuan (265.7 billion dollars).
china has posted an initial success in its move to cool down the heated economy thanks largely to the use of financial tools including loan curbs and the first interest rate increase in nearly a decade, but the country’s economy still grew at an estimated pace of over 9 percent.
economists agree that the country’s gross domestic product may rise at least 8 percent this year, spelling out the need of continuous, strong monetary support.
this year’s money supply target, however, has to take into full account of the current and trend price hikes, as excessive money supply growth usually leads to severe inflation.
the consumer price index (cpi), the key inflationary index of china, increased 2.8 percent last november, the lowest in nine months, posing a drastic drop of 1.5 percentage points month-on-month.
the inflation, nevertheless, only eased temporarily, economists say. a more worrisome sign is that the producer price index (ppi),a leading indicator of price pressure, has remained on an upward curve since last year, even after investment growth slackened its pace in may.
it’s a tricky situation. while high consumer prices will erode into people’s living standards, sharp differences between producer prices and the final prices threaten to significantly eat into corporate profits and disrupt economic growth.
the government said the inflation should be capped at 4 percent this year.
another bewildering picture that challenges the central bank and government is investment -- china’s economic growth hinges heavily on investment.
the growth of investment in fixed assets including infrastructure, which slowed down from blistering paces of 40 percent in early 2004 to 27.7 percent for the first three quarters, is still faster than the 26.7 percent for 2003, when worries about overheating arose.
the central economic work conference has warned of possible resurgence of overheated investment, partly because local government officials enthuse in those pointless but prestige projects.
but some projects and small and medium-sized enterprises long hit by financing problems have already suffered greatly from the macro-control, prompting them to resort to underground funds with very high interest rates, said xu hongyuan, director of the development and research department of the state information central, a governmental think-tank.
he proposals the central bank control stringently the extension of long-term loans while satisfying the firms’ demand of current fund.
the pboc could also lower its deposit reserve requirement for commercial banks, when necessary, in order to give them more money to be loaned, he said.
people are guessing whether the central bank would further raise interest rates this year, while most economists hold that the bank is awaiting to see if last year’s hike could rein in red-hot investment within a prescribed period of time. if the pboc reaches its goal, another rate hike is not that likely.
will the renminbi be revalued? central banker zhou xiaochuan reiterated at a recent meeting that the central bank will keep the yuan’s exchange rate stable at a reasonable equilibrium while going on improving the currency’s determination system and fighting against illegal trading.