Rein in growth in investment, lending
(Xinhua)
Updated: 2006-07-05 09:17
China needs to take more aggressive actions to slow down the rapid growth in
lending and investment to prevent its economy getting overheated, said a latest
report from the National Development and Reform Commission.
Although it
was still "too early to call the Chinese economy overheated", the report
completed by a research team headed by Wang Xiaoguang warned that this was the
time to "stay high alert".
Attributing the surging investment to the
impulsive spending of local governments and the influx of huge amount of funds
from stock markets, real estate sector and bank deposits where investment yields
are either low or unpredictable, the report held that the chances of an obvious
slow-down in investment growth for the second half of the year was "rather
small".
It also pointed out a policy dilemma China may have to face in a
long time because of the incompatibility in its monetary policy and the exchange
rates.
If the central bank raised the interests rates, more hot money or
short-term speculative capital would swarm into the country to take profits and
force Renminbi to appreciate. If the central bank took no action, however, more
capital would flow into the fixed assets market and lift up the producer price
index, intensifying the pressure of inflation.
Experts said that the
dilemma is getting increasingly severe as China's foreign exchange reserve has
reached a new high of 895.04 billion U.S. dollars by April, calling that the
expanding trade surplus was "a major factor".
The report published on
Tuesday in China Securities Journal said that the People's Bank of China has
planned to raise deposit reserve rate by 0.5 percentage points starting from
Wednesday. This measure could alleviate to some extent the excessive growth in
money supply without stoking up the "anticipated revenue" of hot fund, it said.
It also suggested that the central bank should issue more bills to
specific financial institutions to tighten the funds available.
When
necessary, the government might also levy special taxes on fixed assets
investment which mainly refer to investment in construction and factory
equipment.
The taxes should be imposed in line with China's industrial
policies so as to facilitate the industrial restructuring, it said.
"The
purpose is to raise the investment costs of certain overheated sectors and
narrow their profit margin to ward off irrational expanding," said the report.
Calling the above macro-economy adjusting measures "temporary", the
report stressed that to effect a permanent cure, China must go all out with its
economic system reform which involves the reforming of financial system,
exchange rate system, land system and transforming of local government's
roles.
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