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BIZCHINA / Review & Analysis
Maintaining right orbit
(China Daily)
Updated: 2007-08-23 11:39
China has moderately tightened credit as the rest of the world is
concerned about inadequate liquidity in the wake of the eruption of US
subprime woes.
The central bank raised interest rates on Tuesday on top of the previous
three hikes this year, pushing the benchmark deposit rate to 3.6 percent
and lending rate to 7.02 percent.
The Chinese economy seems to be a different story. While many other
regions are fettered by growth uncertainties, Chinese policymakers have
to use various tools to keep the economy from overheating.
Seen from the quick move this time, which follows an interest rate hike
and reduction in tax on deposits last month, the policy-makers seem to
have become more resolved in using monetary policies to rebalance the
economy.
The shorter intervals in the adjustment of the interest rate indicate
that policymakers anticipated there could be an unpleasant situation if
tightening measures were not taken.
The economy has, as policy-makers have rightly pointed out, shown more
obvious signs of growing from relatively fast to overheated as it picked
up to expand by 11.9 percent in the second quarter, 0.8 percentage points
higher than three months earlier.
Data in money supply, lending, inflation and fixed-assets investment for
July also point to the necessity to cool off the economy.
The move is therefore within expectation although the same had been taken
a month earlier.
The interest rate hike bears much meaning in preventing rising food
prices from leading to a more general inflation across the sectors.
It also helps assure individual depositors as the stunning 5.6 percent
consumer price index growth in July has pushed the real deposit interest
rate further down into the negative territory.
As the interest rate rises, people may slow down their withdrawal of
money from banks to invest in the red- hot stock market.
But fundamentally, the move reflects the strategy of policy-makers to use
monetary tools to keep the overall economy in the right orbit - fast but
not uncontrollable.
The biggest challenge for the Chinese economy is to prevent it from
growing too fast to be sustainable.
If this cannot be attained, more tightening moves are expected in the
pipeline. Do not be surprised if it happens in the coming months.
(For more biz stories, please visit Industry Updates)
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